The Dreamworld park, which has over 40 rides and attractions, said at least three people died, but police said four were dead.
"I am able to confirm at this point that four adult persons have lost their lives as a result of the incident," Queensland Police spokesman Todd Reid told reporters on the Gold Coast, adding that the accident happened on the Thunder River Rapids ride.
Queensland Ambulance official Gavin Fuller said the victim were two men and two women, aged between 32 and their early 40s. Their nationalities were not revealed.
The ride, which carries circular rafts that can accommodate six persons, "sustained some sort of malfunction, causing two people to be ejected from the ride, another two people were caught inside the ride", Fuller told reporters.
The Gold Coast Bulletin said water was drained from the attraction in an effort to save the people trapped, but to no avail.
Dreamworld, which opened in 1981, said in a statement that it was "working as quickly as possible to establish the facts around the incident and is working closely with emergency authorities and police to do this".
"Dreamworld's focus and priority is with the families of those involved in this tragedy and will be providing an update to the public as soon as information becomes available."
The park was closed and will remain shut on Wednesday.
A witness who was about to go on the ride said "everyone was screaming" after a raft apparently flipped.
"We saw (a) little girl and we believe it was her mum because it was just her and her little sister that was an infant," Lia Capes told the Australian Broadcasting Corporation.
"I was speaking to one of the guys and he said it was the raft or the boat thing in front of him, the whole thing flipped and everyone was screaming."
Another witness, who did not want to be named, told the Gold Coast Bulletin: "My sister and niece were on the ride, they are so traumatised, there is a woman hanging by her foot, crushed from the ride."
The Thunder River Rapids ride is described as a family-friendly "white water rafting" experience, where people "travel down a foamy water track past the Gold Rush Country, speeding up to 45 kph through the turbulent rapids".
Dreamworld is Australia's largest theme park, and features what it calls the biggest and fastest thrills rides in the country. It is run by entertainment operator Ardent Leisure Group.
Gold Coast mayor Tom Tate said it was a "very sad day for our city".
"Our thoughts are with the families of those affected –- and the emergency staff in attendance... A truly sad day for all," Tate added on Facebook.
