The men were deployed as part of a six-person Marine Rescue NSW team after a good Samaritan saw a yacht in distress near the breakwall at south Ballina, in the state's north, on Monday night.
But the conditions were "extremely difficult" and the rescue vessel soon capsized while battling a 2.5 metre swell and strong winds.
While 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.
Both were Ballina locals.
"These men are heroes," NSW Police Marine Area Command Superintendent Joe McNulty said.
"They volunteer their lives to save others and went out last night in difficult sea conditions to a vessel in distress to save the life of another man."
The body of a man in his 50s, who is yet to be formally identified and had been on board the sinking yacht, was found ashore without a life jacket.
Four surviving volunteers - aged 55, 75, and two aged 61 - sustained minor injuries and have been hospitalised, but all are expected to make a full recovery.
Conditions were "extremely treacherous" at the time the rescuers went to sea, Supt McNulty said.
Swell and winds had created a wave that was difficult to navigate, manoeuvre and enter from the river system.
The rescue boat capsized, with some volunteers ejected from the vessel while others were trapped in its hull.
Meanwhile, the in-distress yacht hit the breakwall, causing it to fall apart and sink.
Conditions in the area remain challenging, but a NSW Police dive team will consider entering the waters later in the week to recover evidence as part of an investigation into the incident.
Search operations have been suspended as police do not believe there were any others on board the yacht.
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 said.
"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."
Asked if the boat used by the rescuers - a Ballina 30 - was appropriate for the mission, Supt McNulty said it was "very well built" and designed in NSW for the state's conditions.
Every asset was initially searching for other survivors at the time of the capsize, which added to the complexity of the situation, Supt McNulty said.
Police were assisted by the Australian Maritime Safety Authority Challenger jet and a Westpac Rescue Helicopter from Lismore.
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," he said.
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