Financial details of the unspecified stake bought by Tata in Xiaomi, the first by an Indian, were not disclosed in the statement issued by the Chinese company on Sunday.
Xiaomi, the No. 3 global smartphone maker, was valued at $45 billion after a December funding round.
Mr Tata, a respected business leader who was the chairman of salt-to-software Tata Sons for more than two decades, has previously invested in Indian start-ups, including online retailer Snapdeal.
Tata'a investment in Xiaomi comes against the backdrop of an aggressive push by Xiaomi in India after entering the market, which has huge growth potential with just one in 10 people using smartphones, in July 2014.
Xiaomi and other Chinese smartphone makers are drafting in cricket teams and Bollywood stars to conquer India, their largest overseas market and a key testing ground for their international expansion.
"Mr. Tata is one of the most well-respected business leaders in the world. An investment by him is an affirmation of the strategy we have undertaken in India so far," Lei Jun, founder and chief executive officer of Xiaomi said in the statement.
"We are looking forward to bringing more products into India," he said.