A police spokeswoman said emergency services were called to the scene in Scotland St, between Smith St and Grovers Hill Rd, about 5.02pm.
One person died in the crash and two others were flown to Dunedin Hospital, one in a serious condition and the second with minor injuries, she said.
Senior Sergeant Simon Matheson, of Queenstown, said a 28-year-old woman, from overseas, was killed in the crash.
The two occupants of the other car involved were the ones flown to Dunedin Hospital.
Snr Sgt Matheson said inquiries were continuing, however, it appeared one vehicle had entered the other lane.
Traffic was diverted away from the state highway while the serious crash unit carried out an investigation.
The road reopened late last night.
The next of kin were being notified, he said.
