Edwards, the Porsche Supercup Championship leader, was in the passenger seat as an instructor for a private training session at Queensland Raceway at Willowbank, outside Brisbane, Porsche Motorsport said.
A 20-year-old local driver was behind the wheel when the car crashed into a tire wall, hit a barrier and caught fire.
The driver was taken to a hospital and is reported to be in a critical condition with severe burns and broken bones. Sean Edwards was recently involved in director Ron Howard's movie "Rush" about the 1976 Formula One season.
In his last post on Twitter, he said: "Time to hit Queensland Raceway today, should be fun, hope there aren't too many kangaroos like at Bathurst!" a reference to Australia's premier endurance auto racing event last weekend.
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Former F1 driver David Coulthard posted a tweet saying: "Shocking news about Sean Edwards' passing, top man and super talented racer, condolences to his nearest and dearest."
Domestic media reported it was the second fatal accident at the circuit in five months, with a 23-year-old motorcycle racer killed after a collision with another motorcycle in June.
Queensland state police and the Workplace Health and Safety unit are investigating the latest incident.
He identified the injured local driver as Will Holzheimer. His parents run a company which offers "hot laps" in racing cars around the circuit. Other members of the Holzheimer family were at the circuit and in race suits when the accident occurred, Tetley said.
Sean Edwards started his racing career in 2003 in Formula Ford, and later competed in Formula Renault UK, British GT and the FIA GT3 Championship before starting his Porsche Supercup career in 2008.