The bombing happened in a public toilet at the city’s main university, killing one woman and injuring one or two others.
Police reportedly cleared the scene due to another unexploded device.
The incident happened near the corner of Pyay Road and University Avenue.
Both the US Embassy and the home of opposition leader Aung San Suu Kyi are on University Avenue but are about two kilometres away from the site of the blast.
Roads were blocked around the area.
Minor bombings are not uncommon in Rangoon – the last fatal incident was in October.
Zoe Daniel = South East Asia Correspondent. ABC News