Police say it was a suicide attack on a foreign military convoy which was travelling through the area.
A health ministry official said nine Afghans were among the dead.
A senior Nato official confirmed that three American contractors had been killed in the attack in the Macrorayan district.
No group has said it carried out the attack, although in recent months Kabul has been regularly targeted by the Taliban in a series of bombings.
The explosion took place not far from Kabul airport and the presidential palace. Witnesses said that children were among the injured and some foreigners were trapped in a destroyed vehicle.
An interior ministry spokesman quoted by the AP news agency said the blast destroyed more than a dozen civilian vehicles.
The bombing, close to a civilian hospital, is the latest in a series of recent deadly attacks following the announcement of a new Taliban leader.
Earlier this month, a Taliban suicide bomber attacked a checkpoint near the entrance to the international airport in Kabul, killing five people.
Before that, there were three deadly attacks in the city - on a police academy, a Nato base and an Afghan army base that killed at least 50 people.
The Taliban has stepped up its campaign of violence in recent months, taking advantage of the warmer weather of spring and summer. It has made some military gains, especially in northern Afghanistan.
An explosion has rocked the diplomatic area of the Afghan capital, Kabul, police have said, with at least 12 people killed and 60 injured.