Police said the crash happened at State Highway 1 near Wairakei, about 20km from Taupo, at about 1pm.
There were two people in each car, some of whom were trapped and had to be freed by the fire service.
One person has died at the scene, while the condition of the three survivors were not immediately available.
READ MORE: Crashes continue on North Island roads
Diversions were in place and southbound traffic is being directed around the scene via Palmer Mill Rd, while northbound traffic was going via Link Rd. The police serious crash unit would be investigating the crash.
A neighbour, who did not want to be named, said the crash happened on a very sharp corner that was a common site for accidents - including a truck that had been through their fence last year.
"We heard it, and got our raincoats and gumboots on and drove up the track," she said. "By the time we got there the others who had seen it had called police. A lot of people had stopped."
The neighbour said the car in which one person had died was out of sight over a bank, and the other car was still on the road, with a passenger being treated by ambulance staff and passers-by.
"Fortunately a car with a doctor and three nurses had pulled over so they were helping. It was fabulous that they were there."
The woman said a number of witnesses had gone down the bank to try to help the injured people in the other car.
"I feel so bad for those young men who had to go down there and see that. The people involved in it will feel awful for a very long time. I feel terrible for the family out there that has lost someone."
It followed a series of crashes around North Island roads overnight and this morning.
In Tahuna, near Morrinsville, fire crews were called just before 7.15am to a crash that left a car upside down in a drain.
Northern Fire Communications shift manager Scott Osmond said no one was trapped in the vehicle, but a person was taken to hospital.
Just after 11pm last night, a vehicle rolled in Pyes Pa Rd, near Tauranga.
One female patient was assessed by ambulance staff and was understood not to have received any serious injuries.
Passengers in a vehicle that ended up down a bank on State Highway 35, near Cape Runaway on the East Coast, also appeared to have escaped serious injury when emergency services arrived on the scene just after 8.30pm last night.
Yesterday, a series of serious crashes in the Eastern Bay of Plenty prompted Whakatane Police sergeant Ray Wylie to issue a reminder to motorists over the holiday period.
"The message is clear education and police enforcement is just one aspect of keeping the roads safe," he said.
"The driver and the decisions they make are also an important part of the picture. Please make the smart decision to be a safe driver, check your speed, your following distance and drive to the conditions."
The fatal accident takes the holiday road toll to nine, and the toll for 2016 so far to two.
A crash in Nelson on New Year's Day claimed the first life of the year. The person died and two were injured when a light van crashed near at 2am.
Police said the crash happened on the Riwaka side of the Motueka River bridge.
Senior Sergeant Blair Hall said the investigation was in its early stages but it seemed the driver of the vehicle died at the scene.
The provisional road toll for all of last year is 321, the highest number since 2010.
"It's incredibly sad and disappointing to have lost so many lives on our roads in 2015," Associate Transport Minister Craig Foss said when it was announced.
"The road toll is not just a number - every figure represents not only the life lost but also grieving families, friends and communities."
During the holidays a year ago, 14 people died as a result of road crashes. There were also 226 reported injury crashes. Those crashes resulted in 16 deaths, 78 serious injuries and 267 minor injuries.
The deaths include seven drivers, seven passengers and 2 motorcycle riders.
The highest holiday road toll was recorded in 1972/73, with 37 deaths. The lowest was three years ago, when six people died.
The Ministry of Transport's official holiday period started at 4pm on Christmas Eve and will end at 6am this Tuesday, January 5.
