The incident occurred on Bourke Street at 6.20pm on Friday.
Bourke Street was closed overnight, but has reopened after tow trucks early on Saturday removed a white Hyundai whose 76-year-old driver died in the crash, and a grey Mazda SUV - believed to be an Uber - from the scene.
Three pedestrians - a 26-year-old man from South Yarra, a 23-year-old woman from China and a 35-year-old woman from Docklands - were taken to hospital.
Two are in a stable condition and the other remains in a serious condition.
Two people travelling in the grey Mazda, aged 30 and 37 and both from Diggers Rest, were taken to hospital with minor injuries.
Superintendent Zorka Dunstan said a 26-year-old man from Melton West was arrested at the scene and taken into custody.
Video footage of the arrest shared on social media shows a man with long dark hair, wearing white pants and a white long-sleeved top and no shoes, sitting on top of his white Toyota sedan following the incident.
Supt Dunstan said three officers on foot patrol nearby were able to take the driver into custody quickly.
"Obviously any incident of this magnitude is concerning for Victoria Police but at this stage, there are no terrorist links," she said at the scene on Friday night.
She said the man was known to police through "mental health interactions" and was undergoing a mental health assessment.
"I can assure the community that there is no ongoing threat," she said.
Police on Saturday said the man was in hospital under police guard.
The streets of Melbourne were packed on Friday ahead of Carlton's AFL elimination final against Sydney at the MCG.
Police were grateful to bystanders who came to the aid of the injured.
"In any of these situations, it's obviously critical that we get assistance where we can," Supt Dunstan said.
"We were obviously very grateful for the people who've rendered assistance and we'll also be speaking to them and offering support."
She urged witnesses and anyone with dashcam footage to contact police.
Eyewitness Joey Tam was walking to the tram stop after finishing work when she heard people screaming.
"I heard a lot of people screaming, my natural instinct was to freeze,'" Ms Tam told the Today show on Nine.
"It's definitely shaken everyone up in the CBD."
She said the crash brought back memories for many Melburnians of other incidents in the same street in recent years.
Six people died and 27 were injured when James Gargasoulas ploughed into them after driving into Bourke Street Mall in 2017.
Friday night's deadly crash is not believed to be connected to any previous Bourke Street incidents.
Premier Daniel Andrews is expected to join Victoria Police to provide an update later on Saturday.
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