It happened at about 20:10 GMT on Friday on the A167 near the junction with Central Avenue in Newton Aycliffe.
Police said a Mercedes E350 collided with a Skoda Octavia taxi.
The taxi driver, aged 36, was airlifted to hospital. His two passengers, a man, 50, and a woman, 45, suffered minor injuries, while the Mercedes driver, a 26-year-old man, was unhurt.
A taxi driver is said to be in a critical condition following a crash in County Durham.