Spectators at the Avalon Airshow were left stunned when the plane lost control and crashed into the tarmac during a demonstration on Friday afternoon.
The crumpled wreck of the orange plane came to a stop near the tarmac and sparked a small grass fire.
Police confirmed the aircraft's pilot, who was the sole occupant, suffered serious injuries.
"The incident occurred a significant distance away from spectators and there have been no reports of further injuries," Victoria Police said in a statement.
"The exact circumstances surrounding the crash are yet to be determined."
The pilot's injuries were to the upper and lower body.
The crash is believed to have occurred during a solo aerobatic display hosted by a NSW event management company.
It featured the Wolf Pitts Pro, an aircraft with a top speed of 414km/h and the ability to withstand large G-forces.
The Australian Transport Safety Bureau has launched a probe into the crash, with a team of investigators to be sent from its Canberra office.
The bureau's chief commissioner Angus Mitchell said investigators would examine the site and wreckage and recover any aircraft components for further examination in Canberra.
"Investigators will also seek to interview any involved parties, and collect relevant recorded information including available flight tracking data, as well as pilot and aircraft maintenance records, and weather information," he said.
Anyone with video footage of the aircraft at any phase of the flight, or in the immediate aftermath of the crash, has been urged to contact the bureau.
The air show has been cancelled for Friday, with security ushering patrons from the venue.
Almost 250,000 spectators were expected to flock through the gates of the airport, between Melbourne and Geelong, for the biennial air show from Friday to Sunday.
The air show has been contacted for comment.
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