It's understood the five-person Beechcraft aircraft was a charter plane heading to King Island.
Police, firefighters and paramedics have arrived at the Essendon airfield after the plane crashed about 9am on Tuesday.
Victoria's Police Minister Lisa Neville confirmed there were five people on board the plane when it crashed.
“It appears that a light plane which was a charter flight has impacted the DFO out at Essendon Fields,” she said.
“There’s also been debris left on the freeway.”
Ms Neville added it was “too early yet to know whether there have been any injuries or fatalities,” with that assessment currently being made by police on scene.
"It appears to be a very very tragic accident that’s occurred out here." she said.
"There is constant explosions going off, there is black smoke billowing into the sky," one caller told 3AW on Tuesday.
Motorists on the nearby Tullamarine freeway have posted videos and pictures of black smoke pouring out from the side of the DFO building.
The Tullamarine and Calder freeways were closed as firefighters work at the crash scene.
"Exit early and avoid the area. Expect heavy delays on all detours," VicRoads warned.
Firefighters are hosing down the side of the DFO building and the charred remains of the plane.
ABC radio caller Jason was in a taxi when he looked out the window and saw what he thought was a twin-propeller plane.
"I saw this plane coming in really low and fast. It went just behind the barriers so I couldn't see the impact but when it hit the building there was a massive fireball," he told ABC 774.
"I could feel the heat through the window of the taxi, and then a wheel, it looked like a plane wheel, bounced on the road and hit the front of the taxi as we were driving along.
"We kept driving and there was big fireball behind us."
It is not yet known whether there are any casualties.
Police are urging commuters to avoid the area.
No shoppers were inside the DFO at the time, with the outlet not set to open for another hour at the time of the crash.
"Obviously there will be a lot of people that’ll look at what’s happened in terms of the aircraft, but there’s undoubtedly been a serious issue that’s happened that’s potentially caused fatalities and certainly serious injuries," Ms Neville said.
More to come
