Police allege a taxi arrived at an address on Nairn Avenue, Ascot Vale just before midday to pick up two male passengers.
Two passengers got out of the taxi in North Melbourne and approached three males standing beside a silver Audi as the taxi driver began to drive away but was followed by one of the males in the Audi.
The Audi then collided with the rear of the taxi causing the cab driver to lose control and mount a curb.
The taxi driver, who was not injured, pulled over on Mt Alexander Road where he flagged down police.
Investigators arrested a 24-year-old Ascot Vale man who has been interviewed and released pending further enquiries.