The eight-carriage train reportedly hit a construction vehicle that had slipped onto the tracks at the tunnel's mouth.
Rescuers combed badly damaged carriages inside the tunnel to find survivors, some of whom smashed windows to flee.
The train, from the capital Taipei to Taitung, was carrying people travelling for a long-weekend annual holiday.
Many people may have been standing because the train was so full.
The 408 train is one of the fastest deployed on a network that is generally considered safe. It can reach speeds of 130km/h (80mph).