Three people have been confirmed dead and a further 25 injured after a car hit pedestrians in Bourke Street Mall.

It is believed a man drove the car into the busy shopping strip just after 1:30pm on Friday, heading towards Williams St.

The area, which was busy with office workers on Friday lunch breaks, school holiday makers and visitors in town for the Australian Open tennis remained in lockdown for the rest of Friday.

Prior to the incident the driver was seen doing burnouts on the corner of Flinders St and Swanston St, causing traffic and pedestrians to come to a standstill.

The man was yelling at pedestrians before speeding North down Swanston Street before turning left onto Bourke Street Mall.

Police chased the car and fired shots at the driver, office workers were told to stay indoors.

ANZ closed its Bourke Street Mall branch and said although no staff were injured it would remain closed for the weekend.

The scene unfolded where a number of national law firms and professional service firms are located, such as Deloitte, PPB Advisory, National Australia Bank, Norton Rose Fulbright and Piper Alderman Lawyers.

Police have arrested the man believed to be the perpetrator and emergency services are assisting injured pedestrians, a number of which have "serious injuries", according to Ambulance Victoria.

Some onlookers reported seeing people bouncing off the red car as it drove through crowds of people.

Victoria Police stopped the car near the corner of Bourke St and Williams St and nearby office workers reported seeing it flip.

Acting Commander Stuart Bateson said a male deliberately drove into pedestrians in Bourke Street Mall.

He said it was not a terror related incident.

Police said the man was connected to a stabbing of a 20-year-old man in the inner-city suburb of Windsor at 2am on Friday.

Following this incident, it is alleged the same man took a woman, who is known to him, hostage in his car. She managed to escape from the car on the Bolte Bridge on Friday before the Bourke Street Mall incident.

It is understood he is currently the subject of multiple bail orders.

Trams have been suspended on Bourke Street and police were taking statements from witnesses.

Hospitals have asked extra staff to come in and cope with the casualties. 

The Royal Children's Hospital said four children were being treated.

A witness Lisa Jessup said she crossed Bourke Street Mall minutes before the car ploughed through.

"It was chaos, you couldn't believe what you were seeing," she said as she stood on the steps of H&M.;

"A minute later the police rushed up the mall and everyone just pointed at them to chase up Bourke Street. People were just racing to help others."

The Australian Open has not been affected by the incident.

Former Victorian police commissioner Christine Nixon told ABC Radio Melbourne that the car missed her by a metre.

She said she spent the next 15 to 20 minutes directing traffic.

Ms Nixon also saw an overturned pram unattended and went to check that it was empty.

According to her account, the mother then walked up and asked: "Where's my child?"

Ms Nixon responded: "I don't know. The child is not in the pram."

Prime Minister Malcolm Turnbull took to twitter to say: "Our prayers and deepest sympathy are with the victims and their families, of this vicious criminal attack in Bourke St Melbourne today".

Opposition Leader Bill Shorten tweeted: "horrific scenes in Melbourne this afternoon".

"Hearts go out to all those who've been hurt."