They were in about 2m ofwater and the boat immediately took on water and began listing.
The boat's buoyancy tanks stopped it sinking to the bottom.
Mr Douglas went immediately to the rescue, picking up the two children.
The father, who had managed to manoeuvre the boat to slightly shallower water, was able to wade to shore.
Mr Douglas said yesterday he had notified the council about the incident and recognised it was a health and safety issue that was likely to be passed on to Occupational Safety and Health.
"I am quite prepared to stop hiring boats so they can drain the lake and trim back all the overgrowth from around the islands," he said.
"My only concern is for the safety of people hiring my boats.
"They come from all over New Zealand and this summer I have had tourists from Australia, England, Germany and South Africa," Mr Douglas said.
The two rescued children had been "quite shaken" by the incident but otherwise had not been hurt.