Marine Rescue NSW sent out a six-person volunteer team to respond to a yacht in distress at the Ballina Bar, in northern NSW, on Monday night.
The conditions proved difficult to navigate, with 2.5 metres of swell and strong winds causing their rescue vessel to capsize.
Though four members of the team made it to shore, the body of a 78-year-old rescuer was recovered by a helicopter and a 62-year-old volunteer was found dead on the sand.
The body of a man in his 50s, who had been on board the sinking yacht, was also found ashore.
NSW Police marine boss Joe McNulty said the volunteers had tackled brutal conditions to try and help people in danger.
"They were out there responding to a vessel in distress, what they volunteered to do, and unfortunately last night was not their night." Superintendent McNulty told Sydney's 2GB radio.
"It wasn't the night for any of the Marine Rescue members, it was a tragedy."
Premier Chris Minns paid tribute to the volunteers and thanked them for their service.
"Emergency service workers do an incredible job to keep us safe in difficult circumstances," he told reporters on Tuesday.
"It's part and parcel for the Australian character that you would do that for your neighbour, for your community member ... but it's such a challenging time for this wonderful organisation.
"I want to pay tribute to their heroism, their sense of courage, their public mindedness, and let them know that the people of NSW are in their corner today."
Emergency services were contacted about 6.15pm on Monday after the yacht was reported to be in trouble off the South Ballina break wall.
Four surviving volunteers - aged 55, 75, and two aged 61 - sustained minor injuries and have been hospitalised, but Police Minister Yasmin Catley said all were OK.
Search operations have been suspended as police do not believe there were any others onboard, the minister confirmed.
"This is a terrible tragedy for a small community losing two of your very valuable volunteers," Ms Catley said.
"That community will wrap around one another."
A Marine Rescue NSW spokesman said it had been a terrible night for the organisation.
"Our focus right now is supporting the families of those affected and our volunteers."
Police were assisted by the Australian Maritime Safety Authority Challenger jet and the Westpac Rescue Helicopter from Lismore.