A group of five people, including a man, two boys, a woman and a girl were bushwalking near Wentworth Pass about 1.40pm on Monday when the landslip occurred, Detective Acting Superintendent John Nelson told media on Monday.
"Unfortunately today as part of that landslide there's been a man and a boy that have passed away," said Det Act Supt Nelson, who described the scene as distressing for emergency workers.
A woman and another boy, both in a critical condition with significant injuries, have now been winched from the site, NSW Police told AAP.
Work to remove the bodies of the man and the boy continued on Monday night.
The girl was physically well enough to walk from the scene.
"Both patients have significant head and abdominal injuries requiring sedation and intubation prior to them being extricated via winch," NSW Ambulance Acting Chief Superintendent Stewart Clarke told media.
Mr Clarke said the incident was a heartbreaking end to what was supposed to be a pleasant day out.
"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," he said.
"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."
Police said they intend to speak with the girl about the landslip, which occurred about 90 minutes walk from road access.
"We do have a girl that is walking out ... who is obviously clearly distressed," Det Act Supt Nelson said.
"As you can appreciate, it's quite a tragic scene."
While conditions are reasonable the site is extremely dangerous and rescuers face arduous conditions, he said.
Police were unable to confirm the ages of the bushwalking group and were not sure if they were Blue Mountains locals.
The agencies involved include NSW Police, Police Rescue, Polair, the NSW SES, NSW Ambulance, and the National Parks and Wildlife Service.
