One of those killed was reported to be a race marshal with the other a spectator, and several children were among those hurt, with some of the injuries said to be life-threatening.
The accident occurred at around 4.30pm local time (3.30pm BST) during the Plan-de-la-Tour route at Draguignan in the Var region in the South of France.
Police from nearby Sainte-Maxime have started an inquiry into the incident.
The BBC reported that driver error may have caused the accident, with a car continuing straight on when it was supposed to turn right at an intersection.
The Var-Matin newspaper quoted a driver at the scene, Dominique Demeyer, saying: "It crashed into the front row of spectators before peeling off and mowing down other people who were further off."
France 24 reported that four of the 17 injuries were serious. It had initially been reported that 15 were injured.
It is the 14th time the two-stage, 157km rally near Toulon has been held.
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