Eyewitnesses who had arrived early for a fishing tournament, cancelled because of rough conditions, described the vessel riding a massive wave when it suddenly rolled.
"It picked up a large wave, dug in and flipped over," said Coastguard Whakatane president Jim Williamson.
Recreational surfers who were nearby immediately raced to the aid of the stricken paddlers, pulled them on to their boards and brought them into shore.
One paddler was picked up by the Coastguard vessel.Whakatane Sport Fishing Club manager Wayne Hunt said swell from the tropical cyclone was hammering the area.
"The waka ama attempted to get over the bar and unfortunately there's been quite a few large waves and it pulled them up from behind and tipped them up.
A Mayday call went out immediately and Coastguard and the Harbour Master raced to the scene but struggled to get close because of the rough seas.
Mr Hunt said the paddlers' rescuers were surfers who were unable to compete in the fishing competition which was called off because of the sea conditions.
"If it wasn't for the quick action of the surfers that were paddling there, they paddled over and plucked them out and got them out of the water.
"They couldn't go out fishing so they packed their boards and decided to go out.
They need to be commended those boys.
"The sea conditions meant the fishing competition was called off, he said.
"The call was made by the Harbour Master that the bar was unworkable.
"Witness Danny Arbuckle, who was on shore at the time, said watching the sea drama unfold was unreal.
He said minutes earlier a fishing vessel, the Blue Mistress, had successfully negotiated the bar. The waka was not far behind and, to everyone's amazement, decided to follow.
Unfortunately the swells had grown to easily be twice as large.
"We just all stood here - there are hundreds of people down here - and we all looked at each other and wondered what the hang is he doing?
"Then all of a sudden he caught a wave, got on top of it and the waka just did a nosedive and the wave came up over the top, picked the behind up and tipped him clean over.
"It was not good, it was really unreal to watch," he said.
The stricken craft is beached upside down on Wairaka Rock at the mouth of the Whakatane River.
Mr Williamson said Maritime New Zealand investigators, already in Whakatane for this week's White Island ferry fire, were investigating today's boating mishap.
