An eyewitness Yusak Lamarua said the accident took place when a speed boat crashed into the banana boat drawn by a another speed boat throwing all seven people on board to the sea.
Two of the seven people were killed on the spot and the other five fell unconscious and were rushed to a hospital in Donggala, Yusak said.
Yusak said the incident took place in front of a crowd of visitors to the resort beach spending their Idul Fitri holidays.
The victims were all from Pasar Masomba, in the city of Palu , he said, adding the accident was all human error as the weather is conducive and the sea was calm.
Most of the visitors hastily left the place after the accident, he said.
Police have come to the location to start investigation.