Five-time defending champion Gary Hubler, 51, Caldwell, Idaho, was killed in the crash shortly after 9:30 a.m. at the Stead Airport just north of Reno, race officials said.
It marked the 18th fatality in the 44-year history of the air races. It also prompted the suspension of the competition the rest of Friday, but race officials said it would resume Saturday as scheduled.
The pilot of the other plane involved in the accident, Jason Somes of Simi Valley, Calif., was taken to Renown Regional Medical Center with non-life threatening injuries. A friend said he was being treated for an eye injury.
Hubler's plane apparently clipped the back of Somes' plane before crashing. Somes was able to land his damaged aircraft, race officials said.
Hubler died instantly. He leaves behind his parents, wife, son and grandchildren, reports CBS Affiliate KTVN.
"They just clipped wings barely," said Carter Fox, who witnessed the crash. "One immediately went down to the ground."
Two judges on the ground also suffered minor injuries from flying debris. One refused medical attention and the other was treated at the scene.
Students on a field trip from seven elementary schools were among the fans at the races when the crash occurred. Washoe County School District spokesman Steve Mulvenon said counselors were being made available to talk to children who witnessed the tragedy.
The races are like a car race in the sky, following an oval path over the airport runway and around pylon markers at various distances and sometimes within a few hundred feet of the ground.
Competing in the Formula One class, Hubler was flying a Cassutt III M single-seat plane named "Mariah," which is designed for pylon racing and aerial acrobatics.
Hubler started competing in the Reno races in 1984. During Thursday's first heat, he reached a top speed of 259 mph, according to the air races' Web site.
Two pilots were killed in accidents on Tuesday and Thursday, the first time since 1993 there has been more than one fatal crash at the races in the same year.
"This is highly unusual," said Michael Houghton, president of the air races.
Brad Morehouse of Afton, Wyo., was "killed instantly" when his jet crashed about 2:45 p.m. Thursday, touching off a small brush fire along the runway, Houghton said.
Morehouse, co-owner of Afton Flight Service in Wyoming, was flying an L-39 Albatross he named "Dino Juice," a jet often used for military flight training.
He was flying in the second heat of the jet class competition. He had finished fourth in Wednesday's qualifying round, reaching a maximum speed of 504 mph, race officials said.
The cause of that crash was under investigation but race officials said the initial indication was Morehouse may have gotten caught in the wake of a jet he was tailing.
Steve Dari, a pilot from Lemon Grove, Calif., was killed when his biplane stalled shortly after takeoff during a practice run at the air races on Tuesday. His fatal crash had been the first at the races since 2002.