Tensions between India and Pakistan have soared after one of Kashmir's leading politicians was shot dead on Tuesday following the killing of more than 30 people in an attack on an army camp near Jammu last week.
India blamed that army attack on Pakistan-based militants.
Mr Straw hopes to ease the tensions between the two nuclear powers with his trip but has no "pre-cooked peace plan".
Nuclear worries
He said: "The possibility of war between India and Pakistan is real and very disturbing.
"The international community is watching events with mounting concern.
"This is a crisis the world cannot ignore."
Both countries have nuclear arsenals and Mr Straw stressed that they had talked publicly about a possible nuclear exchange.
"It is therefore a conflict with potentially devastating consequences for the people of both countries and of profound concern to the whole of the international community.
"There is a pressing need for an end to terrorism, a lowering of tension and then dialogue."
Border shelling
Earlier, leading Kashmiri politician Abdul Ghani Lone was assassinated at a rally in front of 5,000 people.
The murder came just as Indian Prime Minister Atal Behari Vajpayee landed in the disputed region.
In recent days, the number of troops lined up against each other on the border topped one million.
Several people are thought to have died in shelling and mortar fire.
Pakistan's High Commissioner in London told BBC News his country and India were "very close" to war.
On Tuesday morning UK Prime Minister Tony Blair's official spokesman urged restraint.
He said support for terrorism in the region must end so political talks can "take hold".
~RS~a~RS~International~RS~q~RS~~RS~z~RS~23~RS~)