Resident Ngaire Benfell said she ''heard a loud bang then a screeching noise'' just before 2pm.
''There was a wee red car sliding on the road, and it looked like it was going to go on fire with all this smoke coming from the back.''
She called emergency services.
Acting Senior Sergeant Dave Scott said a northbound red Honda and a late-model black Toyota sedan travelling south collided on SH1, near East Taieri.
The elderly driver of the Honda, who was the sole occupant of the badly damaged vehicle, was cut from the vehicle by firefighters.
He was taken by St John to Dunedin Hospital in a critical condition, but later died.
Police were unable to release the man's name yesterday.
The serious crash unit would examine the scene today.
The female sole occupant of the Toyota was taken to hospital as a precaution, After the crash, traffic was diverted along Gladstone and Riccarton Rds.
