Emergency services were called at about 1.45pm on Monday to Slyne Road in Bolton-le-Sands, after reports of an accident.
Police said a Toyota Yaris, travelling northbound, had collided with a black Seat Ibiza, travelling in the opposite direction.
The driver of the Toyota, an 89-year-old woman from Carnforth, suffered multiple injuries.
She was taken by air ambulance for treatment at Royal Preston Hospital but died on Monday night.
The driver of the Seat, a 79-year-old woman from Lancaster, was treated for bruising, shock and whiplash.
The road was closed for more than five hours while accident investigators attended the scene.
Police are now appealing for information following the collision.
Sgt Nigel Ralphson, of Lancashire Police, said: “This is a tragic incident where a woman has sadly died.
“Our thoughts are with her family at this very sad and difficult time.
“We are appealing for information and would be keen to speak to anyone who witnessed the collision.”
Anyone with information can call police on 101 quoting log reference 0709 of July 25.