The 10-year-old star, who plays the young version of Freida Pinto's character in the Oscar-winning movie, was left in tears as her one-room hut was demolished to make way for a new railway through the Garib Nagar slum in Mumbai, India.
One of Ali's pals witnessed her beg the authorities to not tear down her home, according to Britain's Daily Express.
The friend tells the publication, "Rubina was pleading with the authorities when they came. She was telling them, 'This is my house, I was born here.' She will now have to sleep in the open until they can rebuild it. She is worried for her baby sister."
It's the second time the child star has seen her house demolished - in May (09) the hut had to be rebuilt after it was bulldozed.
The youngster is currently waiting to move to an apartment which has been promised by the Jai Ho! Trust, set up by the Slumdog Millionaire filmmakers to ensure the welfare of both Ali and her co-star Azharuddin Ismail.
Ismail has already been placed in a $56,000 (£35,000) property with his family.
The child stars of the Danny Boyle movie each receive a $120 (£75) a month allowance administered by the trust.