Japanese, U.S. and Turkish nationals are among the injured, police said.
The two cog-wheeled trains collided just before 11 a.m. in a single-track tunnel on the outskirts of the Alpine town of Garmisch-Partenkirchen in the southern state of Bavaria, police said.
One of the trains was full and carrying 40 passengers in the direction of the town of Grainau on the way to the Zugspitze, which lies on the border with Austria. The other was empty except for the driver.
The company operating the trains, the Bavarian Zugspitze Railway, said the accident was probably caused by a mistake by the Grainau signal controller, who had allowed the empty train to leave the station before the one coming from Garmisch had arrived.
"Because the stretch of the route has just one track, the train from Garmish should have first arrived in the station," said railway head Peter Hirt.
About 150 rescue and fire personnel worked for hours to free the injured, nine of whom were evacuated by helicopter.
Andreas Geuther, head of the Red Cross rescue team at the site, said firemen had to cut open the train to reach some of the injured passengers who were trapped in the train inside the narrow tunnel, while others managed to get out by themselves.
"Many of them are suffering from shock," he said.
The trains were part of the "Zugspitzbahn," an old-style mountain railway that uses a cog mechanism to pull up the carriages.
It carries passengers from Garmisch-Partenkirchen to a station halfway up the 9,721 ft mountain, where they transfer to a cable car to reach the peak.
The accident comes four months after an express train jumped the tracks and ploughed into a house near Cologne, killing at least nine people and injuring 100 in Germany's worst rail crash since the Eschede disaster of June 1998.
Then, a high-speed train jumped the rails at a cutting near Eschede in northwestern Germany, sending carriages ploughing into an overhead road bridge which collapsed and crushed several coaches, killing 101 people.
At least 13 people were injured in a minor crash on the same railway in August last year. The railway transports about half a million tourists annually.
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