The car was dragged a short distance down the tracks but incredibly, the driver of the car was able to free himself before CFA arrived on scene.
The driver was transported to hospital by Ambulance Victoria suffering shock and minor injuries.
The train, which provides Blues bands and entertainment on each carriage, was returning to Queenscliff carrying more than 200 passengers when the accident occurred.
One bus load of people from the train was taken back to Queenscliff while the rest of the passengers remained on the train until it was given the all clear to carry on.
There were no injuries to any passengers on the train.
Police are investigating the details of the accident.
CFA trucks from Drysdale,