"She is a French national. A case of murder has been registered," New Delhi police spokesman Rajan Bhagat told AFP.
"We're looking for the suspects," he added.
He said he could not immediately release the woman's identity or comment on media reports that the victim had been strangled.
The woman was aged between 25 and 30, the media reports said.
The victim's body was found in "a highly decomposed state" in the guest house in Paharganj, Bhagat said.
The congested Paharganj area which lies near New Delhi's main train station, is a favourite haunt of budget travellers and is packed with guesthouses, small shops and restaurants.
The woman's body was found in a room that had been booked by a handicraft trader who has since disappeared, the police spokesman said.
"We are looking for him. We hope to have a breakthrough soon."
The woman had checked into another hotel in the same district on March 30 and her visa was due to expire on April 10, The Hindu newspaper said, quoting police.
New Delhi is widely perceived as an unsafe city for women with official data showing that among the 35 biggest cities in the country, it has the largest numbers of crime cases against women.
Source : Afghan Voice Agency (AVA), International Service