The driver, a 51-year-old local man, has been arrested. The prosecutor said the suspect had drunk a significant amount of alcohol.
Authorities said they were not working on the assumption that the incident was politically or religiously motivated.
The city's mayor described the scene as "horrible".
Witnesses said people screamed in panic and some were thrown in the air by an SUV travelling at high speed in Trier's Fleischstrasse pedestrianised street, near the city's famous Roman gate, the Porta Nigra.
The incident happened at around 13:45 local time (12:45 GMT), and the suspect drove for 1km (0.62 mile) "hitting people at random on his way" before being stopped by a police car, Trier police spokesman Karl-Peter Jochem said earlier.
The victims were two women, aged 25 and 73, a 45-year-old man and a nine-month-old baby.
Footage posted on social media appeared to show the presumed driver being held by several officers next to the damaged car. Police have been questioning the suspect, who was alone, and has been identified by German media as Bernd W.
Initial indications "suggest that psychiatric problems possibly played a role", prosecutor Peter Fritzen told reporters. The man did not have a criminal record, had no fixed address and was living in the car, which had been lent to him by someone else.
Earlier, Mayor Wolfram Leibe said up to 15 people had been injured, some of them seriously.
"We [had] a driver who ran amok in the city... I just walked through the city centre and it was just horrible. There is a trainer lying on the ground, and the girl it belongs to is dead," he told a news conference.
Chancellor Angela Merkel said in a statement: "The news from Trier is very sad. My sympathy goes to the relatives of people who were torn from their lives so suddenly and forcibly. I also think of those who have suffered severe injuries and I wish them much strength."
The incident has shocked Trier, a medieval city of around 110,000 people and 720km west of Berlin, near the border with Luxembourg. A Christmas market that is usually held in the area was cancelled this year due to the Covid-19 pandemic, but shops were open.
The incident brought back memories of the 2016 attack in Berlin when
an Islamist militant drove a hijacked truck into a Christmas market in 2016, killing 12 people and injuring dozens of others. He was shot dead by Italian police four days later.
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Trier: Four die as car ploughs through Germany pedestrian zone - BBC News
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