Edwards, the current leader of the Porsche Supercup Championship, was a passenger in a Porsche 996 being driven in a private test at the Queensland Raceway in Willowbank, just outside Brisbane.
The car reportedly went off the track and hit a tyre wall, instantly bursting into flames, according to an Autosport report.
Edwards was killed instantly.
Spectators at the circuit immediately rushed to the site of the crash and tried to save the car's occupants. It took emergency services three hours to cut the driver free from the wrekcage. The 20-year-old man from Brisbane, as-yet-unidentified, is in intensive care with life-threatening injuries. It is thought that Edwards was giving him a lesson in racing technique when the accident took place.
26-year-old Edwards first entered motor racing as a teenager, and is a former GT3 European Champion.
But 2013 was proving to be by far the finest season of his career, earning him a reputation as one of the finest Porsche racers on the planet. He was well on course to become this season's Porsche Supercup champion, leading the series by 18 points with just two races remaining this season, and had also won the Nurburgring and Dubai 24 Hours races.
Edwards is also the son of former Formula One driver Guy Edwards, who is one of the drivers who saved Niki Lauda's life by pulling the Austrian from the wreckage of his Ferrari at the 1976 German Grand Prix.
And Sean Edwards actually relived that moment himself earlier this year when he played the role of his father in the recent film "Rush", which focuses on Lauda's rivalry with James Hunt that season.
Tributes from across motorsport have flooded in for Edwards. The Motor Sports Association said in a statement that they were "shocked and saddened" by the death of a "hugely promising young racer who came through the junior formulas in Britain, before making a career in international sports car racing."
British F1 driver-turned-commentator David Coulthard echoed those sentiments: "Shocking news about Sean Edwards passing, top man and super talented racer, condolences to his nearest and dearest."
Indy Car star Dario Franchitti, who is himself recuperating from a hideous crash, said: "Incredibly sad news out of Australia about Porsche driver Sean Edwards. Rest in peace Sean.”
Porsche's head of motorsport, Hartmut Kristen, also paid his respects: "This news has sparked immense regret at Porsche. Edwards has for many years been one of the most popular and successful drivers in the Porsche one-make race series.”
Former F1 driver Karun Chandhok took to Twitter to discuss the circumstances surrounding the crash: "RIP Sean Edwards... Sadly highlights the dangers that instructors put themselves in while helping other drivers."