Emergency services were called to the Melba Highway in Victoria's Yarra Ranges about 2.40pm on Thursday after reports of a serious collision.
Detectives are continuing to investigate the circumstances surrounding the crash involving a V/Line coach carrying 18 passengers, a white Toyota Yaris and a blue Toyota Corolla.
The white car's driver - a 52-year-old woman - died at the scene, police said.
A 16-year-old female passenger was taken to hospital with serious injuries.
On-scene crews estimated the bus crashed with 18 people on board, including the driver.
A 17-year-old boy was airlifted to hospital with life-threatening injuries while a 16-year-old was taken to hospital with serious injuries.
Paramedics also rushed a man in his 50s on the bus to Box Hill Hospital with serious injuries.
A specialist Air Ambulance Victoria helicopter crew and multiple Mobile Intensive Care Ambulance and Advanced Life Support paramedic crews assessed 21 people at the scene.
The remaining bus passengers did not require emergency transport.
A 76-year-old man, identified as the driver of the bus, was not injured.
The 27-year-old driver and passenger of the blue Toyota were also unharmed.
Images from the scene show the charter bus - a scheduled V/Line coach service from Mansfield to Melbourne's Southern Cross Station - crashed on the side of the road.
No one has been arrested or charged over the incident.
An investigation into the incident is ongoing and Major Collision Investigation Unit detectives have processed the scene.
Victorian Premier Ben Carroll described the event as a "terrible incident".
"Our thoughts are with everyone involved, their families and loved ones," he said.
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