Victoria state police said they had arrested the driver of a car after it "collided with a number of pedestrians" in downtown Melbourne.
Paramedics were "treating and transporting to hospital 12 people", with some seriously injured, Ambulance Victoria added.
Sky News Australia reported that a pre-school child with a head injury was taken to hospital in a serious condition.
A witness, Sue, told Melbourne radio station 3AW that she heard screams before she saw "people flying everywhere".
"People are flying everywhere. We heard thump, thump. People are running everywhere.