The pair were deployed as part of a six-person Marine Rescue NSW team after a good Samaritan saw the stricken yacht near South Ballina breakwall, in the state's north, on Monday night.
But the conditions were "extremely difficult" and the rescue vessel soon capsized while battling the 2.5 metre swell and strong winds.
Although 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 found ashore without a life jacket.
Ballina Shire Council Mayor Sharon Cadwallader said volunteers were the heart of her community.
"To lose two courageous, brave volunteers for Marine Rescue is deeply saddening and we are devastated," she told AAP.
"They answered the call of duty to save lives, they never hesitated to answer that call, and that's courage on steroids - that's bravery.
"It's a tragic event of epic proportions. Our community will grieve and never forget what's happened."
One of the surviving volunteers was forced to scramble up a rock wall with a broken leg and four broken ribs.
Two others were hospitalised with more minor injuries and the remaining survivor did not require treatment.
All survivors are expected to make a full physical recovery, but the mental health injuries could be substantial, Marine Rescue NSW Commissioner Todd Andrews said.
"Last night was the darkest night ever experienced by Marine Rescue NSW," Mr Andrews said.
Locals have shown their support by leaving flowers at the Marine Rescue tower, and a fundraiser has been set up to raise money for a replacement rescue vessel, with Cherry Sports Group Ballina committing $25,000 to the cause.
Conditions were extremely treacherous when the rescuers took to the sea at about 6pm, according to NSW Police Marine Area Command Superintendent Joe McNulty.
Swell and winds had created a wave that was difficult to navigate, manoeuvre and enter from the river system.
The rescue boat overturned on the bar as they were transferring between the river and ocean systems, ejecting some volunteers from the boat and trapping others in its hull.
Supt McNulty said the crew's courage in the face of such dangerous conditions was heroic.
"These men are heroes," Supt 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 in-distress yacht eventually hit the breakwall, causing it to fall apart and sink, and the rescue boat is also unlikely to be retrievable.
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 believe all onboard the yacht have been accounted for.
Premier Chris Minns thanked the volunteers for their service.
"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," he said.
The Ballina Marine Rescue NSW base will be closed for at least three days, but neighbouring units will be able to respond to vessel rescues.
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.
All of the volunteer team were experienced and had necessary qualifications, Mr Andrews said.
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