Police said at least eight people were wounded by the blast, including an MP.
The explosion, near a mosque in the district of Eastleigh, comes two days after a bomb exploded in the same area, killing one.
Kenya accuses Somalia’s al-Qaeda-linked al-Shabab militant group of trying to destabilise the country.
The explosion happened at around 19:30 local time (18:30 GMT).
“Three ambulances are in the area. Police are patrolling, many residents have locked themselves in their houses,” local resident Joe Chaudhry told AFP by telephone.
Last month, Kenya accused al-Shabab of launching a grenade attack on a bus in Eastleigh, killing seven people.
Kenya last year sent its troops to fight al-Shabab in Somalia – they have now joined the 18,000-strong African Union (AU) force supporting the UN-backed government.