THE Australia Day Skyworks display has been cancelled after two people died following a plane crash into the Swan River in front of thousands of shocked onlookers.

The incident happened just after 5pm near Heirisson Island, close to where crowds were building in anticipation of the annual fireworks display.

The plane nosedived into the water and broke into separate segments on impact.

The pilot and passenger were confirmed dead a short time later. They were the only people on board.

At the South Perth foreshore, families setting up for tonight's Skyworks rushed to the river's edge as the plane crashed into the water.

"I was watching the show and all I saw was the plane just nose dive into the water," witness Natasha Eyles said.

"As it hit the water you could the plane break into two."

Camera Icon The plane crashes into the Swan River. Credit: PerthNow, roda16 / Twitter

Witness Craig Newill was with his family when the plane went down.

"We were so stunned and shocked," he said.

"We could see him stall.

"His wings were pointing to the sky and to the water and we thought 'this is not good' then we saw it break into two pieces."

PerthNow reader Kristijana Dutkovic said: "Saw it do a couple of passes over the water & then it dropped straight into the water.

"Boats were quick to respond though - hope they (are) alright."

The City of Perth issued a statement just after 6pm confirming Skyworks had been cancelled due to the incident.

The display, which attracts massive crowds each year, had been due to start at 8pm.

Camera Icon The aftermath of the crash. Credit: PerthNow, Daniel Wilkins

Lord Mayor of Perth Lisa Scaffidi said the Skyworks had been cancelled "Due to the operational need to conserve the integrity of the site and in respect for those killed and as per operational directives for such occurrences".

People have been urged to cancel their plans to approach the wider city area, with those already around the foreshore asked to leave.

COMMUTER CHAOS EXPECTED IN CITY EXODUS