One helicopter careered upside down on a sandbar at the water's edge with debris strewn around the area after the crash about 2pm on Monday near the Sea World theme park at Main Beach.
On board, four people were killed and three passengers were critically injured.
The second aircraft landed safely, but the windscreen was damaged with a number of people injured by glass debris.
"After our initial inquiries it appears that one has been taking off and one has been landing," Acting Inspector Gary Worrell told reporters.
"Those two aircraft then collided, have crashed and landed on the sandbank just out from Sea World resort.
"As a result of that, four people have lost their lives today and we have three others who are critical in hospital."
Ambulance supervisor Jayney Shearman said another six patients were treated primarily for glass shrapnel wounds.
"There's a number of injuries, what we call multi-system trauma, which means there was a lot of impact to the body," she said.
Witness Jonathon James Spagnol said the crash happened after helicopters got too close, with one's rear rotor sawing off the other's.
"Yea 2 choppers hit each other. Look like one went up and one was coming back in. Chopped the back off the other landed on the sand bar. Was right behind us," he wrote on Facebook.
Carmen Renèe Mallia wrote: "I seen it also. I was absolutely shocked. Shook me to the core. I hope everyone was ok."
"Saw it hit something from the car and it just went straight down. Hope everyone is okay," Billie Tunks said on Facebook.
Julie Cannock was also in the area and reported a huge bang as the aircraft collided.
"Awful watching this happen live in front of us," Ms Cannock said on social media.
"So lucky for the families and boaties on the beach under where they crashed ... huge bang as they collided and the rotors flew off and then watched in slow motion as the 1st chopper crashed to the sand bar ... still in shock ... so sad for the families on what was supposed to be a lovely days sight seeing tour."
People on jetskis and in boats rushed to help the victims at the small sand island off the theme park before paramedics and police arrived on the scene.
A LifeFlight Helicopter also circled over the scene before another was seen heading the scene just before 3pm on the Flight tracker website.
A witness said one of the helicopters had been doing joyflights from Sea World in the hours before the accident, but AAP was unable to confirm with park operator Village Roadshow.
The Australian Transport Safety Bureau was investigating the collision, chief commissioner Angus Mitchell said.
"The ATSB asks anyone who may have seen the collision, or who witnessed the helicopters in any phase of their flights, or who may have footage of any kind, to make contact via witness@atsb.gov.au,'' he said.
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