Police believe the boy ran onto McIntyre Road in Sunshine North after breaking away from his mother about 6.30pm on Thursday.
He was hit by a red sedan that failed to stop.
The boy was critically injured and taken to hospital, but he died overnight.
The sedan was last seen travelling north on McIntyre Road.
Victoria Police Superintendent John Fitzpatrick said it was possible the driver did not realise their car struck the toddler.
"That's largely due to the size and the age of that little guy - it's a tragic set of circumstances," he told Melbourne radio station 3AW.
"We suspect (the car) will have some signs - it may not have a lot of damage on it."
Supt Fitzpatrick said police did not believe excessive speed was a factor in the collision.
"This car's not darting in and out of traffic and driving crazy, it's just a matter of circumstance," he said.Â
"That little child got away from mum and crossed the road and that car happened to be at that particular spot and time."
Police are looking for CCTV in the local area while appealing for the driver or anyone with information to come forward.
18°C