The two men rescued from the ocean off Two Rocks have been taken to Joondalup Health Campus, suffering from burns and the effects of exposure.
One of the men was unconscious when found and is in a critical condition.
Water Police Sgt Michael Wear said early reports from one of the fisherman was that they believe a wave had crashed over the back of their 5.5m boat and it had started to sink.
The EPIRB was activated just after 10am, sparking a search operation.
Both men had burns to their backs and legs but authorities do not think the fuel tank or the boat exploded.
"Our understanding is that both men are suffering some kind of vapour burns from the fuel, the fuel has spilled into the water and they've been in the middle of that fuel," Sgt Wear said.
One of the men bought the boat only yesterday and Sgt Wear said the emergency beacon was still registered to the previous owner.
Fortunately police were able to get in touch with him and then the new owner's family, so they soon knew who they were looking for.
But about 10.40am the EPIRB signal stopped, which Sgt Wear said could indicate that it had been turned off or that it had gone down with the boat.
Searchers in boats and in the air found no sign of a stricken vessel but officers on the police boat spotted one of the men about 5km west of the marina about 1pm. They were about 100m away when they spotted the 36-year-old, who was wearing a life jacket and waving frantically to get their attention.
He was pulled out of the water and into the police boat, suffering from hypothermia.
Searchers found the second man unconscious about 100m away and he was rushed to shore in a volunteer sea rescue boat. He was also wearing a life jacket.
Both men were treated at shore by paramedics before they were taken to Joondalup health campus.
"They were in the water for about 3hours," Sgt Wear said. "The water would be fairly cold still, a little bit of a breeze is blowing. "Three hours in the water can be quite a critical time, especially with hypothermia."
Sgt Wear said the two men, who were neighbours, had left Two Rocks marina about 7.45am to go fishing and were not expected back until this afternoon.
"Their families were not aware anything was wrong until police contacted them to say the EPIRB had been activated," he said.
Police and the Department of Transport will investigate exactly what happened. At this stage police are unsure exactly where the boat sank and do not know if it will be recovered.
At this stage they said there was no indications it was not seaworthy.
Police officers are waiting to speak to the injured men at hospital.
Sgt Wear said today's conditions were fine for being out in a boat, with just a 1m swell.
"They have done the right thing, they have the safety equipment, they have life jackets on," he said. "It goes to show that no matter what the conditions, you always have to be mindful of the ocean and have all the right safety equipment on board.
"They are lucky to be found but it shows the search and rescue system we have and all the safety equipment they had on board (works), that's why were were able to find them."