The hot-air balloon took off from CT Barling Reserve, Reservoir, in Melbourne's northern suburbs, about 7am and was in the air about 30 minutes before the man fell from the basket.
His body was found in Albert Street, Preston, a residential area, which police then closed off to traffic.
Police will prepare a report for the coroner, but say the death is not being treated as suspicious.
The balloon landed safely at Yarra Bend Park, many kilometres from where the man's body was found.
Police are speaking with other occupants of the balloon and witnesses.
Access to Albert Street in Preston has been blocked off as police investigate. (Diego Fedele/AAP PHOTOS)
Albert Street has been closed in both directions between Wood Street and Murray Road and drivers have been urged to avoid the area.
The National Commercial Hot-Air Ballooning Industry and the Australian Ballooning Federation issued a statement after the company BalloonMan was asked for comment.
In a statement, the groups gave condolences to the man's loved ones.
"Hot-air balloon baskets are designed with safety in mind, specifically to prevent passengers from falling out accidentally or from any accidental exit," the statement said.
"Passengers and the pilot are understandably traumatised by this tragedy and the operator is arranging psychological support and counselling for all affected."
The matter is also being investigated by WorkSafe Victoria, the Air Transport Safety Bureau and the Civil Aviation Safety Authority.
Emergency landings of hot-air balloons are not uncommon in Melbourne.
In April 2022, a hot-air balloon on its maiden flight with 13 passengers and a pilot on board was forced to land among buildings in Elwood in Melbourne's southeast.
Three people suffered minor injuries.
Another two people were injured on New Year's Eve in 2021 during a hard landing in a field near Lilydale, east of Melbourne, in which the balloon's basket was dragged 30 metres.
A fuel leak also sparked a fire on a hot-air balloon flying over Victoria on Boxing Day in 2018, with one of its 15 passengers cutting their hand after the basket landed in trees.
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