Two boys and two girls in their final year of primary school died in the accident in Devonport, in the northwest of Tasmania state, about 10 a.m. (2300 GMT on Wednesday). Five more children were in hospital, four in critical condition, authorities said.
Tasmanian Western District Police Commander, Debbie Williams, told reporters the children may have fallen from a height of approximately 10 metres.
There was no immediate explanation for how the jumping castle became airborne, and no other details were released of the children's identities except that the incident took place at Hillcrest Primary School. Students in the last year of primary school, Year 6, are typically aged 10 or 11.
The accident would rank among Australia's deadliest involving an amusement ride, and brought on a wave of disbelief and mourning.
Prime Minister Scott Morrison described the incident as "shattering and heartbreaking."
"Young children on a fun day out, together with their families and it turns to such horrific tragedy at this time of year. It just breaks your heart," Morrison told reporters.