The two men, both aged in their 20s, were seen going into the water about 5.20pm. One fell from a rope swing into the water and the other then went in to help him.
Both disappeared from sight, and one man's body was yesterday recovered from the swimming spot.
The search for the second man went late into the night, with police using a boat with sonar on board.
The lake level was lowered to help with the search.
A police spokeswoman said this morning that searching stopped around 11.15pm last night and McLaren Falls Park was cordoned off overnight.
"Police are in contact with families, but it is not appropriate to provide further details at this time," a statement said.
The Police National Dive Squad from Wellington was at the scene last night and this morning.
Police were assisted in the search by the TECT Rescue Helicopter, the Tauranga Fire Service's urban search and rescue team, Tauranga's volunteer Land Search and rescue team, the Tauranga Coastguard, the Papamoa Surf Life Saving Club and the Amateur Radio Emergency Communications (AREC).
Rescue helicopter pilot Liam Brettkelly told the Herald the helicopter was called about 5.45pm.
One body had been recovered by the time the chopper arrived.
The scene was guarded overnight.
The men were believed to have been with a group of friends, all students from India who live locally. The group of friends gathered at the entrance to McLaren Falls Park after receiving a call informing them that two of their associates had gone missing.
McLaren Falls Park, a 10-minute drive from Tauranga city, is 190ha of pastoral and horticultural parkland set alongside Lake McLaren. It is popular for camping, fishing, kayaking, and bush walks.
Mr Madden said the missing pair were from India and in a group of four who had come to McLaren Falls.
"One of the males has swung on a rope that was suspended from a branch of a tree out over the lake. Unfortunately the rope broke and he ended up in the water and it is believed that he was unable to swim.
"One of the other parties who had some swimming capability has then entered the water to effect a rescue but unfortunately he also succumbed to the water and he was located deceased last night."
Mr Madden said there was a "reasonably large hole" - between 4m and 6m in depth - just below where the tree was situated.
The other men in the group and their families were currently being supported.
The partner of one of the men is from Tauranga while the wife of another is from Gisborne, he said.
Mr Madden said the wife of a park ranger had called police after being approached by a member of the public in the nearby cafe.
He was unsure if the group had tested the rope before using it.
"If you're going to use something that you don't know first of all you've got to test the equipment that you're going to be using and you've got to look and see what the dangers might be, there might have been a log or rock right underneath."
Mr Madden was unsure how long the rope had been in place but council staff had told him the trees were regularly checked and any ropes removed.
"But members of the public continue to tie them to trunks as you would expect because it's a bit of fun. It's just really tragic that this particular rope has broken."
Tauranga District Council parks and recreation manager Mark Smith confirmed staff would cut down ropes from trees "about a couple of times a year".
"We've never seen it as a problem before. People come here and have a great time playing on the ropes."
Mr Smith said the park ranger lived on site but he was unsure how long the rope had been in use.
"There's two or three ropes (still) over there so the visitors are often tying ropes up to play with their families and jump in from that spot."
Mr Smith said the site of the incident, Bottom Flat, "had been perfectly safe for decades" and he was "extremely surprised" by the incident.
The council would consider re-evaluating the use of ropes in the park after police finished their investigation.
"We will probably be cutting them down more often or we could also consider putting something in that's very safe, maybe we could install something, but we're not at that point."
Bay of Plenty Sikh Society secretary Lehmber Singh said he urged Indian people to steer clear of the water if they had not learnt to swim.
"A lot of Indian people can't swim. I try and remind them not to go in the water because they're not usually very good at swimming. There's no lessons at school in India."
Mr Singh said where he was from - Punjab in Northern India - it was a 48-hour drive to the sea. Although there were a few rivers, Indian people would just get in and quickly get out again.
"That's why I'm scared of water. "There's been a lot of Indians drown in Auckland, too. They've never been taught, they're not experts, they might only go in for one or two minutes."