The crash took place about 10.0am on Nerowie Road between Parwan South Road and Bucklers Road in Parwan near Bacchus Marsh.
The driver of one of the cars, who has not been identified by police, died at the scene.
A woman in the passenger seat of that car and two children in the rear seats were taken to hospital.
The woman is believed to have suffered life-threatening head injuries and was taken for treatment at Royal Melbourne Hospital, while a teenage boy was airlifted to The Royal Children’s Hospital Melbourne.
A young girl who was also in the back seat was taken to the same hospital with head injuries.
According to Ambulance Victoria, both children are in a serious but stable condition.
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Detectives from the Major Collision Investigation Unit are still attempting to establish the cause of the crash.
Police arrested the driver of the second vehicle, who is assisting police with their enquiries.
A man and a woman in their fifties were admitted to a hospital in Footscray for assessment sometime after the crash, according to Ambulance Victoria.
Police are urging anyone with dashcam footage or information on the crash to come forward.
A total of 213 people have died on Victorian roads in 2023, according to Victoria Police.