Athar Mubarik, the district police chief, said: "The initial report is that it was a suicide attack. The attacker was wearing a jacket carrying 12 to 14 kilograms of explosives."
A security official talking on condition of anonymity said the death toll had reached 30.
The blast also injured around 40 others.
Medics said six people with serious injuries were rushed for specialist treatment in Multan, west of Dera Ghazi Khan.
The powerful blast caused serious damage to the mosque and another nearby Shia holy site.
Shia Muslims are observing the last week of a 40-day mourning period to commemorate the death of Hussein, the grandson of Prophet Muhammad. Hussein was killed in 680 AD.
About 20 per cent of Pakistan's 160-million-population are Shia Muslims.
Although Shia and Sunnis generally co-exist peacefully in the country, more than 4,000 people have died in sectarian violence since the late 1980s.
Two days ago, an explosion ripped through a Sunni mosque in the northwest town of Dera Ismail Khan, killing one person and wounding 18 others.