The Pacific National freight train collided with a truck on the Barrier Highway at Bindarrah in SA about 10.30am local time on Sunday.
The two male drivers from Port Augusta, aged 48 and 57, died in the crash.
Police crash investigators arrested the Queensland truck driver, aged 75, and charged him with two counts of causing death by dangerous driving.
"The impact of the crash caused the locomotive to catch fire and several train carriages to derail, blocking the entire highway," South Australian police said in a statement.
The road remains closed and SA Police including Major Crash Investigators are being assisted at the scene by NSW Police and other emergency services.
"Motorists coming from NSW will not be able to travel past Broken Hill on the Barrier Highway into SA," police said in a statement.
"Cranes have been brought in from Port Augusta to assist in the clean-up and clearing the containers.
"This will be a long process and the road surface has also sustained damage so will in turn need to be inspected for safety."
A Pacific National spokesperson said the company takes the safety of its employees very seriously and had notified regulators.
"This incident is having a profound impact across the organisation, and our first priority is to ensure the highest level of care to the families of our drivers who have tragically died," the spokesperson said in a statement.
The Australian Transport Safety Bureau said it had commenced an investigation into the incident and was deploying Adelaide-based transport safety investigators with experience in train and railway operations to the scene.
"As part of their evidence collection activities, investigators will examine the level crossing infrastructure and rolling stock, interview involved parties and any witnesses, examine truck and train operational information, recover any relevant components for further examination at the ATSB's laboratories in Canberra, and analyse any recorded information," the bureau said in a statement.
The deaths are the 115th and 116th lives lost on SA roads compared with 71 at the same time last year.