A man and woman are dead after a light plane crashed into the Swan River in Perth during Australia Day celebrations, prompting the cancellation of Perth's Skyworks show which was expected to attract 300,000 people.

Water Police confirmed the plane, a Grumman G-73 Mallard flying boat, crashed into the water about 5:00pm on Thursday evening.

They said two people, the pilot and an occupant, died in the incident. They were the only people on board.

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Crowds had gathered on the foreshore in the lead up to the traditional fireworks display, and many boats on the water also rushed to the plane in a desperate bid to rescue those inside.

Onlookers said the plane was following another aircraft south along the river before it banked, stalled and nosedived into the river, where it broke into two pieces.

Lloyd Douglas was on a nearby boat when the plane smashed into the water.

"As he banked left he seemed to go further to the left ... and lose forward momentum and lost altitude fairly quickly," Mr Douglas said.

"My concern was that he'd landed in amongst all the small boats up at the east end of the Perth water ... it did hit the water with a fairly decent force."

He said there were people climbing over the wings of the plane, shortly after it crashed, trying to extract the people inside.

Mr Douglas said it took several minutes for people to reach the plane, and it was nearby revellers who were first able to get to it.

Onlookers watch in horror, disbelief as plane nosedives

A horrified onlooker captured the moment before the plane hit the water. ( Supplied: Michael Legg )

Tamara Legenstein said she first saw the plane out of the corner of her eye.

"I saw it heading towards the water, I was sort of thinking at first that it was a stunt plane and that it was going to go down low and then head up back into the sky," he said.

"But it started to cartwheel, hit the water and then broke into two.

"(It) took a few seconds to realise that it was real."

Peta Healy said people around her were initially in disbelief, before hoping that those in the plane were OK.

"I watched the plane come down the South Perth side of the river and turn, and as it turned it went on its side and headed to the water.

"So it nosedived, and then I head a 'boof', like a noise, and you could see that it was broken into two pieces.

"The police boats were out there pretty quickly."

Revellers urged to leave city as festivities cancelled

Acting Police Commissioner Stephen Brown asked people gathered in the city for the traditional annual fireworks show to leave the area.

Commissioner Brown said extra public transport services had been arranged to ferry people home, and he urged them to leave rather than adding to the current "chaos" on the streets in the Perth CBD.

"For the dignity of the people who lost their lives and in respect of these families we have cancelled the event," he said.

"I'm quite sure that West Australians will appreciate that."

Just the tail of a light plane which crashed into the Swan River in Perth remains visible. ( ABC News: Tom Wildie )

Commissioner Brown said authorities would turn their focus to what caused the crash.

"Firstly we have a scene out here which will be subject to both coronial and a CASA investigation," he said.

"It's really important that we preserve that scene to make sure that we can extract everything we can to find out why this tragic event occurred."

Police said the remains of the aircraft were not being removed during the night.

The event organisers, the City of Perth, had expected about 300,000 people to attend the family-friendly event, which sees boats gather on the water and crowds line the foreshore to watch a Skyshow including fireworks and light planes flying in formation.

This year's line up included a flying boat landing, dragon boat demos, classic wooden boats, DFES aerial fleet water drops and ski shows.

It is not known if the plane which crashed was part of the festivities.