Law enforcement agencies are still searching for the suspect, Highland Park Police Commander Chris O'Neill said during a press conference.
Police said the suspect hasn't been identified but described him as a White male, approximately 18-20 years old, with longer black hair, a small build and wearing a white or blue T-shirt. They said he should be considered armed and dangerous.
Investigators said a firearm had been recovered from the scene and it appeared the gunman was shooting from a roof. Lake County Major Crime Task Force spokesman Chris Covelli described the weapon as "a high-powered rifle."
Over 100 law enforcement officers from multiple agencies, including the FBI, Illinois State Police and Lake County Sheriff's Office, responded to the shooting in the suburb north of Chicago.
Police responded to the sound of gunshots at around 10:14 a.m., O'Neill said. Covelli said the gunman stopped firing as officers responded and eluded authorities.
"All indications is he was discreet and he was very difficult to see," Covelli said.
"It sounds like spectators were targeted ... very random, very intentional and a very sad day," Covelli said.
Investigators are combing through surveillance cameras looking for information on the shooting, CBS News senior investigative producer Pat Milton reports. They are also going over cell phone video of bystanders at the parade.
Police and ambulances from several jurisdictions swarmed the area in the aftermath of the shooting. Video from the scene showed people being placed into ambulances.
"Everyone was was running, hiding and screaming," Kaufman said. "It was extremely terrifying. It was very scary. We are very fortunate, we got out very quickly."
Witnesses told CBS Chicago there was confusion in the initial aftermath of the shooting over whether the loud bangs were part of the Independence Day festivities. A video posted to Twitter by Chicago Sun-Times columnist Lynn Sweet, who was at the parade, showed a band playing on a truck in the parade as a crowd of people passed the truck, running the other way.
"I remember seeing people, like, you know, running and ducking and, you know, just screaming," a woman told CBS Chicago. "I ran with my daughter, and I ran into, like, a little store, but I was scared because I didn't know if they were coming … or if they were, you know, like, in the building."
Highland Park Mayor Nancy Rotering said the rest of the festival has been canceled, and several nearby communities also canceled their parades.
"On a day that we came together to celebrate community and freedom, we're instead mourning the loss, the tragic loss of life and struggling with the terror that was brought upon us," Rotering said at a news conference after the shooting.
Governor JB Pritzker said in a statement: "There are no words for the kind of monster who lies in wait and fires into a crowd of families with children celebrating a holiday with their community. There are no words for the kind of evil that robs our neighbors of their hopes, their dreams, their futures. ... But grief will not bring the victims back, and prayers alone will not put a stop to the terror of rampant gun violence in our country.I will stand firm with Illinoisans and Americans: we must — and we will — end this plague of gun violence."