The Beechcraft Super King Air twin-engine aircraft with five aboard struck the DFO Essendon about 9am on Tuesday after taking off from nearby Essendon Airport, heading for King Island.
Assistant Commissioner Stephen Leane told reporters it was a catastrophic crash and all five aboard were believed dead.
"It looks like no-one has survived the crash," he said.
"Looking at the fireball, it is incredibly lucky that no-one was at the back of those stores or in the car park of the stores that no-one was even hurt."
Victorian Premier Daniel Andrews says is "the worst civil aviation accident that our state has seen for 30 years".
The plane was carrying a golfing party bound for King Island links, The Advocate newspaper in Tasmania reported.
Unconfirmed reports on twitter say the party was four US tourists and an Australian pilot.
Superintendent Mick Frewen said there was a mayday call shortly after take off.
Authorities were reluctant to confirm who was on the plane or their nationalities, saying only that family members were being contacted.
Witness Carmel Brown told AAP there was a huge explosion when the plane hit.
"There was a big crash and then a big red fireball, like a mushroom," she said
Ash Mayer, a storeman at The Good Guys, felt the crash reverberate through his building.
"We were just coming off the off-ramp, we felt just everything shake and a massive explosion and a fireball go up," he told AAP.
"We just knew this was bad and there was nothing we could do.
"One of the boys actually saw it go down and he's now left because he can't deal with it."
Craig Lapsley, Emergency Management Commissioner, said witnesses had been treated for shock and trauma but not physical injuries.
Firefighters have extinguished the blaze that travelled from the aircraft, through the building and out into the car park fueled by aviation fuel.
"So that is where obviously the area itself is quarantined for the investigation and will be for some hours," he said.