Foreign Minister Julie Bishop says Australian diplomatic staff have been informed by Spanish authorities at least 16 people were killed and more than 100 injured when a van ploughed into crowds at a major tourist district.
Catalan police say two people have been arrested, and there are reports another suspect was shot dead by police.
The late-afternoon attack in the heart of Barcelona was swift, unexpected, and devastating.
Travelling at a high speed, a white van mounted the footpath and zig-zagged through pedestrians in the popular Las Ramblas district.
It travelled several hundred metres, before finally coming to a halt in the thoroughfare.
Witnesses describe hearing people screaming and seeing them running for their lives as the van driver fled on foot.
Australian tourist Julia Monaco was in a nearby store as the incident unfolded.
"There were a lot of people in the piazza, and they all appeared to be looking in the same direction. There was a police presence, and we could hear sirens. And in a split second it became absolute pandemonium. Something happened out on the street, and then suddenly everyone was just running, literally, for their lives."
Casualties were scattered over the streets, with scores of heavily armed officers on the scene within minutes.
Buildings were cleared and train stations shut down as authorities searched for suspects.
But Australian tourist and cybersecurity expert Susan McLean, who hid in a shop in the aftermath, says police were clearly caught off-guard.
"Apart from the immediate response to the situation, which they absolutely categorically had to do, there didn't tend to be a second wave of police with what we would call in Australia 'a secondary cordence'. So you have the inner cordon, where you cordon off the crime scene, and normally you have an outer cordon which is 100 metres back, and you stop people getting into that inner area. We didn't see any of that, so we didn't have any idea what was going on."
Police have detained two men, but say neither was the driver.
One of them has been named as 28 year-old Driss Oukabir, a legal Spanish resident of Moroccan origin.
Local news outlets claims he handed himself in to police to deny any involvement, claiming his ID was stolen and used to rent one of the vans.
Catalonia's Interior Minister, Joaquim Forn, says the incident is being treated as a terror attack.
"We want to wholly condemn this attack, condemn this action and everything that has taken place. We are especially worried about the kinds of actions that have taken place in our city and we have set up an anti-terrorist cabinet to coordinate all security forces in Catalonia. We are making all efforts to put in place our strategy to search for the people who have committed this action."
Terrorist group IS has claimed responsibility for the attack, but that has not yet been verified by appropriate authorities.
British security expert Dr Sajjan Gohel says there is a difference between people inspired by IS ideology, and those taking instructions directly from them.
"And in fact there's even a third path, which is assisted, which is tending to be the more common route that we're seeing. So you have individuals that are communicating with ISIS handlers online. ISIS has their intelligence apparatus, known as the Emni, they use encrypted messaging, they use the dark web to communicate with people in a respective country to plot, plan, to give them guidance in terms of location, target, strategy. We're seeing a lot of those type of attacks, especially vehicle attacks, in cities such as Berlin, in London, and now potentially Barcelona as well."
Foreign Minister Julie Bishop says Australians were involved.
"The Australian government extends its deepest sorrow to the victims, to their families, to the people of Barcelona, and we stand with the government of Spain in denouncing this appalling act. I can report that one Australian woman, believed to be from New South Wales, is in hospital in a serious but stable condition. Two young Australian men have advised us that they were directly affected. They have gone back to their hotel and they will seek medical treatment in the morning."
There has been universal condemndation from world leaders.
German Chancellor Angela Merkel described the attack as "revolting", while British Prime Minister Theresa May says she is sickened by the senseless loss.
Prime Minister Malcolm Turnbull says Australia remains "resolute" with Spain, a sentiment echoed by the French and Canadian leaders.
US Secretary of State Rex Tillerson also offered a warning to attackers.
"We offer our condolences to the loss of life and the injuries that have occurred to so many innocent people yet again. We will continue to monitor the situation, we stand ready to assist law enforcement, national security authorities in Spain. Our consulates in Barcelona and our entire mission in Spain team are currently assisting Americans in Spain who are affected by these events. We ask US citizens in the area to let your loved ones know you are safe. Terrorists around the world should know the United States and our allies are resolved to find you, and bring you to justice."
