They say 20 others have been injured and the alleged offender is now in police custody.
Police say that it is not a terror related incident and is connected to an earlier stabbing in Melbourne's south east this morning.
Spokesman, Stuart Bateson, says the man deliberately drove the car into the crowd.
Stuart BATESON: " We currently have three deceased and at least 20 injuries. I can confirm that we believe this is connected to an earlier stabbing in the southern metro region. We have the offender in custody. There is no further threat to the public at this stage. I can also confirm that this is not a CT-related incident. At this present stage, we ask the public to avoid the city.".

