An eight-year-old boy was also injured in the incident at the Highland Car Club Snowman Rally in Glenurquhart Forest, near Loch Ness.
His condition is not believed to be life threatening and he has been taken to Raigmore Hospital in Inverness.
A third person was also injured as a result of the collision, police later confirmed. The person was not seriously injured, and was described as "walking wounded" by Northern Constabulary.
Neither the driver or the co-driver of the vehicle was injured, and no other spectators were hurt.
Police said initial reports suggested a car left the track during stage one of the event, and hit spectators.
The rally was abandoned after the collision during the first stage of the event.
Officers will carry out a full investigation and a report will be submitted to the procurator-fiscal.
The race is the opening round of the 2013 Scottish Rally Championship.
Dave Robson, chairman of the Scottish Rally Championship said: "The management committee, competitors and officials of the SRC extend their condolences to the families of those involved in today's incident on Special Stage One of the Snowman Rally.
"We offer our committed support to Highland Car Club and all those affected at this difficult time."
A statement from Highland Car Club said: "The club extends its sympathies to the families of those involved."