Police said US soldiers based in Saddam Hussein's hometown, 175 km north of Baghdad, shot at the family's red car in the town last night.
"There was a family; four children, three women and their driver," an Iraqi police major said. "The US forces fired on them and all of them were injured. One child was killed."
A Reuters reporter at Tikrit hospital saw a US officer visiting the wounded in hospital.
A US military spokesman in Tikrit said today he had no information about a child being killed. Major Neal O'Brien said he knew of one incident in which four Iraqis were injured after their car ran a checkpoint.
"At about 7.15 (0315 AEDT Friday) last night, a patrol engaged a civilian vehicle that refused to stop at a checkpoint," he said.
"Four Iraqi civilians were injured and evacuated by Iraqi ambulance."
He said there were two cars involved in the incident.
Reuters Television footage showed a red car full of bullet holes. The seats were covered with shattered glass and stained with blood.
Iraqi police heard the gunfire and came out to the scene with an ambulance. Doctors said the three-year-old died in hospital from severe wounds to his stomach.
"The Americans are criminals," his mother, May Qahtan, said from her hospital bed today. "Saddam is the only terrorist? The Americans are the ones killing all these people, all these children. Isn't that terrorism?"
US troops have a major base in Tikrit, and regularly carry out patrols and raids in the town and villages nearby.
In January, the US army said it was investigating the death of at least three people shot in their car near Tikrit, an incident which stoked anger against US forces in the already tense area.
An Iraqi survivor said a US military convoy opened fire on the car. One US officer in Tikrit said it was likely US troops were responsible, given that a heavy-calibre machine gun appeared to have been used. But no US unit ever admitted to the shooting.
Rights groups have criticised US forces for being too hasty to open fire in Iraq. Iraqi civilians say US soldiers sometimes fire randomly if they come under attack or think they are under attack, killing or wounding innocent civilians in the process.