Witnesses said mourners, some of whom had carried guns to the funeral, opened fire after the explosion, delaying rescue workers from accessing the scene.
There was no immediate claim of responsibility for the bomb attack.
Ehsanullah Khan, a police officer in the town, was quoted by the Reuters news agency as saying: "Now violence has erupted here. They're torching vehicles, ransacking shops and other properties."
Al Jazeera's Imran Khan, reporting from Islamabad, said Dera Khan has a significant Shia population which has been under attack for several months, and that there have been several incidents within that area.
"What is happening is that we are seeing more and more [bold] attacks - like this one," he said.
"Just a day ago the caretaker of the mosque was gunned down by unidentified gunmen. After that a funeral procession was taking place this morning at 10am [05:00 GMT] and a suicide bomber wandered up on foot and blew himself up.
"There was a huge amount of panic [and] after the panic came anger and gunshots were fired. Shops were ransacked and houses set on fire."
Pakistan's interior ministry has placed a curfew within the area and security forces have cordoned off the area, Khan said.
Local television footage showed people rushing around a street and one person on a stretcher after the blast.
Relations between Pakistan's Sunni majority and Shia minority are under growing strain from a series of attacks attributed to sectarian fighters.
Much of the violence has been in the northwest, where the Taliban and several Sunni groups have gained greater control.