The singer - who recently postponed the European leg of her world tour - was allegedly spotted snorting the drug at the bar in the Beverly Wilshire hotel in Los Angeles on March 10.
"I saw her pull a plastic bag out, put a folded bill to her nose and discreetly snort a line from it, of what to me certainly looked like cocaine," an insider told In Touch. "She's extremely thin and looks like a disaster. She's a hot mess."
According to the source, Houston was accompanied by ex-husband Bobby Brown, and things took a turn for the worse after she allegedly began screaming: "I want a f**kin' drink!"
The witness added that Bobby, who claims to now be free of drugs, appeared disgusted with his former spouse's behaviour.
"He had so much trouble trying to control her," the source added. "He tried to make her leave, but she wouldn't. She started yelling his name loudly and calling him a stupid son of a bitch, and he told her to shut the f**k up."
> Brown: 'Whitney got me hooked on drugs'