The 66-year-old man remained in hospital on Tuesday where he was questioned.
No charges have been laid, and police will continue their inquiries once he is released from hospital.
His lawyer said the man is an insulin-dependent diabetic and required immediate treatment from paramedics at the scene.
Three groups were sitting outside the Royal Daylesford Hotel on Sunday when the car ploughed into the beer garden.
Migration agent Pratibha Sharma, 44, her nine-year-old daughter Anvi and partner Jatin Chugh, 30, were among those killed in Sunday's crash.