Initial reports say a man and a young girl have been killed.
It is understood one of the vehicles lost control and crashed into a fence outside a house near Bailieborough, close to where some spectators were standing.
At least five other people were injured in the accident, which happened at about 11:30am.
Racing at the Cavan Stages Rally was suspended following the crash.
It is believed the man who died was a photographer.
Matthew McMahon, who was at the scene, said: “All I saw was the car go over the crest then I heard the skid and people screaming.
“All hell broke loose, basically – people were crying and you could see something serious had happened.”