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A group of five people had been hiking on a path near Wentworth Falls when the slip happened about 1.30pm.
A call was made to emergency services and when they arrived they found a man and a boy had died at the scene.
A woman and another boy are in a critical condition. The fifth person – a girl – is currently walking back out of bushland and is said to be “extremely distressed”.
Blue Mountains Police Commander Acting Superintendent John Nelson said the operation to winch out the two injured patients is incredibly delicate.
“In terms of the site it’s extremely dangerous and unstable, so our rescuers are working under quite arduous conditions.”
The woman and boy have serious head and abdominal injuries and had to be sedated to be rescued, NSW Ambulance Acting Chief Superintendent Stewart Clarke said.
“This is absolutely heartbreaking for all involved and a truly tragic ending to what I’m sure was meant to be a pleasant day out,” NSW Ambulance Acting Chief Superintendent Stewart Clarke said.
“It is terribly sad to have lost two lives here today and my heart goes out to the families and the survivors of this horrific ordeal who have witnessed what is certainly a traumatic event.
“This was a really complex and delicate rescue operation for our crews who were working to access patients in rugged bushland and were navigating unstable ground.”