The kite, flown at a park in Higashiomi, Shiga Prefecture, yesterday, was about the size of 100 "tatami" mats (Japanese floor mats), measuring 13 metres by 12 metres and weighed 700 kilogrammes, according to festival organisers.
A 73-year-old man was severely injured, while a 7-year-old boy and two other people sustained injuries, the fire department was quoted as saying by Kyodo news agency.
The kite was at a height of around 200 metres when it suddenly plunged from the sky and crashed into the crowd, media reports said.
A local weather observatory said it had issued a strong wind warning for some parts of Shiga including Higashiomi in the early afternoon, around the same time as the accident.
Higashiomi is known for large kites and the festival is held every year. Giant kite festivals are frequently held in Japan and there have been cases of spectators being injured in the past.
In 2004, eight people were injured when a one-tonne kite crashed into crowd in Kanagawa.