The 4.9m aluminium vessel tipped over when a seasick passenger shifted positions, throwing all seven men aboard into the water between Waiheke Island and Papakohatu Island, also known as Crusoe Island.
A mayday call was made from a nearby boat about 9.30am.
Five men were rescued but two drowned after being in the water for about 45 minutes.
Coastguard northern region chief executive David Tommas said the boat was probably overloaded and too small for the conditions.
"It was blowing at 20 to 30 knots out there and the sea was running at 1.5 to 2m. We believe the vessel was 4.9m long which, for seven people, is probably at the limits of its operating capacity - particularly in this weather."
There did not appear to have been any life jackets or emergency communications equipment on board.
Sergeant John Saunders said the ill man had needed to vomit so moved from the bow to the back of the boat, which "had the effect of lowering the stern very close to the water".
"They took on water over the back of the boat, and the effect of all the water and the seven occupants caused the boat to roll."
A nearby vessel raised the alarm and emergency services spent the next hour trying to find and rescue the men, who had become separated in the water. Three of the men were picked up by a nearby boat and two others were rescued by a Coastguard vessel.
The last two men found had been in the water for about 45 minutes and were "unconscious and unresponsive" as they were pulled out, Mr Saunders said.
Paramedics performed CPR for about 20 minutes but were unable to revive them
The men were all Pacific Islanders from Kiribati, Tonga and Rarotonga. They were all family and friends aged between about 25 and 50.
The boat's owner was among the survivors.
Asked whether the men should have been out out on the water today, Mr Saunders said: 'Probably not, in a boat that size. I think the boat was overloaded and was probably too small for the conditions.
One of the survivors, who was suspected to have hypothermia, was loaded on to a stretcher and into an ambulance at the Marine Rescue Centre at Mechanics Bay.
The other four surviving men were wrapped in blankets and given hot drinks as they were being interviewed by police at the rescue centre.
Westpac Rescue Helicopter chief executive Bob Parkinson said: "It's just another example of overcrowded small boats in challenging conditions where people are inadequately prepared.
"It's just unbelievable. It's really quite a challenge how to get this safety message across."
Hundreds of people were at the Westpac Rescue Helicopter's open day today and would have witnessed the two dead men being taken away in body bags at the wharf, Mr Parkinson said.
He said families were gathered at the chopper base, about 20m away from where the bodies were taken off the Coastguard vessel, to watch rescue demonstrations by the helicopter crew.
"Some of them will have witnessed the body removal from the Coastguard boats. That's done as discreetly as authorities can but nevertheless it's quite sobering," Mr Parkinson said.
Maritime New Zealand is investigating.
