The accident happened around mid-day near the canal city's famous Rialto Bridge as the public transport waterbus manoeuvred toward a stop, Italy's Ansa news agency said.
The German man, identified as a criminal law professor from Munich, his wife and three children and the gondolier all fell into the water in the accident. Other gondoliers rushed to the rescue, taking them to the bank.
The waterbus reportedly crushed the German man, named as Joachim Reinhard Vogel, against the gondola.
His three-year-old daughter suffered a head injury and was taken to hospital in nearby Padua. Initial reports had said the injured girl was on the vaporetto.
"I am really sad after what has happened," said Venice mayor Giorgio Orsoni.
As a sign of mourning the 425 gondolas normally in service suspended their activity on Saturday.
Prosecutors have opened an inquiry into the causes of the accident, the news agency reported. Police questioned the gondolier and the pilot of the waterbus, and the two vessels were seized.