The collision occurred about two kilometres from Stawell on the Western Highway towards Deep Lead, shortly before 1pm on Sunday.

A police media spokesperson said as a result of the collision, a female passenger in one of the vehicles died at the scene.

The male driver of the car was airlifted by helicopter to The Alfred Hospital in a critical condition.

The female driver of the second vehicle was taken to Stawell Hospital for observation, while two children, who were passengers in the second vehicle, received minor injuries and were transported by ambulance to the Royal Children's Hospital.

The accident resulted in the Western Highway being closed to traffic well into the night. Detours were set up initially at the Halls Gap Road turnoff in Stawell and later, traffic was diverted at Seaby Street/Pomonal Road.

Highway traffic coming from Horsham was also diverted at the Deep Lead turnoff into Stawell.

Occupants were trapped in the vehicles for some time following the accident and the highway was blocked as emergency services crews worked to free those who were trapped.

Police are investigating the circumstances surrounding the collision and appeal for any witnesses to contact Crime Stoppers on 1800 333 000 or visit www.crimestoppers.com.au