Witnesses alerted police shortly after 9.30pm on Friday to an unknown attacker having wounded several people indiscriminately with a knife on a central square, the Fronhof.
Police said the perpetrator was on the run, and they had only very little information on the man so far.
They believe the stabbings were carried out by a lone attacker.
Police are at the scene of a stabbing attack at a festival in Solingen, western Germany. (AP PHOTO)
One of the festival organisers, Philipp Müller, appeared on stage and asked festivalgoers to "go calmly. Please keep your eyes open, because unfortunately the perpetrator hasn't been caught".
He said many people had been wounded by "a knifeman".
At least one helicopter was seen in the air, while many police and emergency vehicles with flashing blue lights were on the road and several streets were closed off.
Police put the number of seriously injured at five. The region's top security official, Herbert Reul, gave a figure of six as he visited the scene in the early hours of Saturday.
"None of us knows why" the attack took place, said Reul, who is the interior minister of North Rhine-Westphalia state.
"I can't say anything about the motive now" and it isn't clear who the assailant was, he said, but the attacker left the scene "relatively quickly".
Mayor Tim Kurzbach said on Facebook, "This evening, we in Solingen are all in shock. We all wanted to celebrate our city's anniversary together and now have dead and wounded to lament."
"It breaks my heart that an attack on our city happened," he wrote.
Local newspaper Solinger Tageblatt quoted Celine Derikartz, its reporter covering the festival, as saying that "the atmosphere is spooky". She said a party atmosphere had turned to shock within minutes and she saw festivalgoers weeping.
The "Festival of Diversity," marking the city's 650th anniversary, began Friday and was supposed to run through Sunday, with several stages in central streets offering attractions such as live music, cabaret and acrobatics.
The city cancelled the rest of the festival after the attack. Solingen has about 160,000 residents and is located near the bigger cities of Cologne and Duesseldorf.
There has been concern about an increase in knife violence in Germany recently.
In May, a knife attack by an Afghan immigrant on members of a group that describes itself as opposing "political Islam" left a police officer dead.
Germany's top security official, Interior Minister Nancy Faeser, proposed toughening weapons laws to allow only knives with a blade measuring up to 6cm to be carried in public, rather than the length of 12cm that is allowed now.
25°C