Senior US diplomats and Gujarat's top bureaucrats are part of the hour-long meeting which the US has described as a "part of our concentrated outreach to senior political and business leaders which began in November to highlight the US-India relationship."
Ambassador Powell's meeting with Mr Modi would put the United States in line with European nations, which have already ended a boycott of Mr Modi.
Surveys indicate an advantage for his party, the BJP, in the general elections due by May. But Washington has made it clear that it is not taking any position on the Lok Sabha elections. After meeting Mr Modi, Ms Powell will meet Congress leader and Leader of Opposition in Gujarat Shankarsinh Vaghela.
The US has also sought to scotch speculation that today's meeting will lead to the lifting of its visa ban on Mr Modi, insisting there is no change in policy. "When individuals apply for a visa, their applications are reviewed in accordance with US law and policy. This is not a reflection of any change," State Department spokesperson Jen Psaki told reporters.
The US had denied visa to Mr Modi in 2005 saying he was "responsible for the (lack of) performance of state institutions" during the 2002 Gujarat riots.
Human rights groups and political rivals allege that Mr Modi turned a blind eye to the riots, that killed hundreds of people, mostly Muslims. Mr Modi has always denied the accusations and a Supreme Court inquiry found no evidence to prosecute him.
The US embassy had reportedly been seeking a meeting with Mr Modi for the past two months.
Indo-US business ties are expected to be high on today's. The two countries share almost $100 billion (620,000 crores) worth of annual trade, with the United States seeing India as a regional counterweight to China.
US automaker Ford is due to open a plant this year in Gujarat, where Mr Modi has been praised by business leaders for cutting red tape. General Motors already has a production facility there.