Five members of the holidaying family had been hiking on a path near Wentworth Falls when the slip happened about 1.30pm on Monday.
Emergency services arrived to find a man, 49, and a nine-year-old boy had died at the scene.
Police said a 50-year-old woman and a second boy, 14, were found in a critical condition and winched to safety about 6pm, before being flown to Westmead Hospital and the Children’s Hospital at Westmead.
The fifth person — a 15-year-old girl said to be “extremely distressed” — was able to walk out of the bushland with the help of emergency services, before being treated for shock at the Children’s Hospital at Westmead.
Police said all five were members of the same British family, on holiday in Australia.
Blue Mountains Police Commander Acting Superintendent John Nelson said the operation to winch out the two injured patients was incredibly delicate.
“In terms of the site it’s extremely dangerous and unstable, so our rescuers are working under quite arduous conditions,” he said.
The woman and teenage 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.”
Blue Mountains police area command officers are investigating the incident.
Police said the British Consulate was also assisting in the matter.