Emergency crews were called to Palm Beach in northern Sydney following reports a boat had overturned in rough conditions around Barrenjoey Headland about 11.35am on New Year's Eve.
A man was pulled from the water by surf lifesavers and treated by paramedics, but he died at the scene.
He has not been formally identified.
A second man was able to climb onto nearby rocks before he was winched to safety by a rescue helicopter and taken to hospital.
Video from the scene showed the man bleeding heavily from his leg, while the dinghy was seen overturned on the rocks.
Locals watched on as a multi-agency search was launched to find the missing boy.
Surf lifesavers were patrolling the beach when the incident happened, Rod McGibbon from Surf Life Saving NSW said.
"The surf today is actually quite large," he told reporters.
"We did have patrols on at the beach ... they were able to respond very quickly which is part of the reason we were able to save one of those people."
Anyone with information is being urged to contact Northern Beaches police or Crime Stoppers.
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