The 31-year-old man from the island has been arrested on suspicion of causing death by dangerous driving and causing serious injury by dangerous driving.
He has since been released under investigation.
The arrest comes after a fatal crash in near Lancaster.
Pauline Edwards, aged 74, from Heysham, died at Royal Preston Hospital after suffering serious injuries in a crash on the Bay Gateway on Wednesday, August 4.
She had been a passenger in a Honda Jazz which overturned after it was involved in a crash with a BMW M5 around 1pm.
Pauline’s family told the Lancaster Guardian: ’It is with great sadness that we announce the passing of Pauline Edwards in a road traffic collision on August 4.
’Pauline taught at Lancaster Road Primary School for 40 years and touched many lives because of her ready smile, and caring and generous nature.
’As the loving widow of James Edwards, Pauline leaves behind her two sons, and many close friends. Pauline will be very much missed by all those who knew and loved her.
’The family would also like to make an appeal for any witnesses to come forward who may have seen the collision or been on the Bay Gate Way around that time.’
The driver of the Honda, an 82-year-old woman from Morecambe, suffered hip and facial injuries and was taken to hospital for treatment, with a third woman, aged 80 and also from Morecambe, suffering minor injuries.
The driver of the BMW, a man in his 50s from Heysham, sustained minor injuries and a passenger in his car, a woman in her 30s, also from Heysham, has been treated for whiplash.
Following further inquiries, Lancashire Police received information that a third car, another BMW, was possibly involved in the crash, with the driver failing to stop at the scene.
A man was later arrested by police in connection with the investigation and a BMW was recovered by officers in the Nottinghamshire area.