The driver and his female passenger were on board when the car crashed over an embankment on a closed section of the event at Mount Roland, in the state's north, about 3.30pm on Wednesday.
Tasmania Police have confirmed the 59-year-old man from Brisbane died at the scene, while the woman suffered non-life threatening injuries.
The road remains closed as police investigate the cause of the crash, and a report will be prepared for the coroner.
A planned meet and greet event in Launceston to cap the second day of the event on Wednesday night has been cancelled.
Targa Tasmania competitors Shane Navin, Leigh Mundy and Dennis Neagle lost their lives during last year's event, prompting an investigatory tribunal to be established.
It made 23 recommendations for future tarmac rally events, including speed limits, altering stages year-by-year to avoid complacency and a tiered licensing system.
Twenty-one of those have been adopted by rally organisers, with two the responsibility of Motorsport Australia to implement.
In total, five competitors have died during the Tasmanian event's 30-year history.
The 2022 edition of the tarmac rally is due to run for six days from Launceston to Hobart, with a record 500 cars taking part.
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