Police have said the driver has been detained after the incident in Volkmarsen, which is in the central state of Hesse.
Police say the driver has been arrested following the incident in Volkmarsen in the central state of Hesse.
Officials have declined to say whether it was an accident or a deliberate attack.
German news website HNA cited witnesses as saying the driver appeared to have deliberately targeted children and had driven into the crowd at full throttle.
Local reports suggest children are among those who have been injured.
Witnesses also said the driver drove around a barrier blocking off traffic from the parade, according to the regional Frankfurter Rundschau newspaper.
It is not yet clear whether the driver intentionally headed towards the crowd.
The police have not received reports of any deaths and do not have a specific number of injuries.
Video from the scene shows a silver Mercedes station wagon with its hazard lights blinking on the pavement, while emergency workers walk nearby.
Amateur pictures published online show police officers standing next to a silver Mercedes.
Today is Rosenmontag in Germany – Rose Monday in English – a popular day for carnival celebrations across the country.
A large number of officers are at the scene about 175 miles southwest of Berlin, and the public are being urged not to spread unconfirmed reports about the incident.