The ascending balloon struck another balloon's wicker basket above it, causing a tear that sent it plunging to the ground, the state-run Anadolu Agency reported.
The passengers on board the balloon that crashed were mostly tourists from Asia, Spain and Brazil, according to Abdurrahman Savas, the governor of Nevsehir province. Many had fractured bones and one of them, an elderly passenger, was in serious condition.
The balloons were flying above scenic canyons and volcanic cones of the Cappadocia region, a popular tourist destination some 300 kilometers (190 miles) from the capital, Ankara. Cappadocia is famed for its "fairy chimney" volcanic cones and its subterranean cities carved out of soft stone.
It was the second fatal accident in Cappadocia since balloon sightseeing tours were launched there more than a decade ago. In 2009, a British tourist died when two balloons also collided mid-air.
In February, a balloon caught fire and crashed in Egypt, killing 19 tourists.