Orbiting the moon, Cassini snapped high-resolution images of what appears to be the eruption of icy jets and giant water vapor plumes from geysers similar to those in the United States' Yellowstone Park.
"The rare occurrence of liquid water so near the surface raises many new questions about the mysterious moon," a NASA statement said.
Carolyn Porco, Cassini imaging team leader at the Space Science Institute in Boulder, Colorado, said that NASA now has “the smoking gun" that may prove the existence of water on the moon.
"However, if we are right, we have significantly broadened the diversity of solar system environments where we might possibly have conditions suitable for living organisms," Ms Porco said.
Some scientists have said Enceladus should be added to the short list of places within the solar system most likely to have extraterrestrial life.
The findings were published in Friday's issue of the journal Science.
Not rushing to conclusions
A senior scientist at NASA's Astrobiology Institute, David Morrison, cautioned against rushing to judgment about whether the tiny moon could support life.
Scientists generally agree habitats need several ingredients for life to emerge, including water, a stable heat source and the right chemical recipe.
"It's certainly interesting, but I don't see how much more you can say beyond that," Mr Morrison said.
Scientists do believe Mars and Jupiter's icy moons might have, or once had, conditions hospitable to life.
Saturn is around 1,300 million kilometres from Earth. Enceladus measures 505 kilometres across and is the shiniest object in the solar system.
It was long thought to be cold and still. But scientists now believe it is a geologically active moon that possesses an unusually warm south pole.
The water is believed to vent from fissures in the south pole. Ms Porco said the venting has probably been going on for at least several thousand years, potentially providing a lasting heat source.
Cassini-Huygens mission
Cassini was launched in October 1997, carrying with it the European Space Agency's Huygens probe. Huygens separated from Cassini in December 2004 to land on Saturn's largest moon, Titan.
Cassini is on a four-year mission to survey the ringed giant and its satellites.
The Cassini-Huygens mission is a cooperative project of NASA, the European Space Agency and the Italian Space Agency.