Port Stephens water police are investigating the death of Jason Jones, 43, from Thornton.

It is believed Mr Jones drowned after the five-metre fibreglass half-cabin cruiser that he had been fishing in with friend Tony Vella, 46, from Cardiff, capsized shortly before 8am on June 27.

"They had fished for about an hour when the boat was hit by a rogue wave," Port Stephens police Inspector Tony Townsend said.

"The boat capsized and both males were thrown into the water."

While Mr Vella resurfaced and swam to Broughton Island,suffering minor cuts and bruises from the rocks, Mr Jones could not be located.

Police confirmed on Tuesday that the men had not been wearing lifejackets at the time.

The capsized boat washed up on to the rocks of Esmeralda Cove on Broughton Island and began breaking apart.

Mr Vella was able to flag down other boat users who alerted police.

Port Stephens water police could not reach him on the island.

Port Stephens Marine Rescue, who were out on the water for a regular training exercise, and the Westpac Rescue Helicopter were called to assist.

At about 10.45am, helicopter crewmen winched Mr Vella to safety. He was taken to the water police station in Nelson Bay and treated by paramedics for his minor wounds.

During the rescue, crewmen spotted Mr Jones's body washed up on rocks nearby.

PolAir, the NSW Police Force helicopter, was called in and retrieved Mr Jones's body from Broughton Island mid-afternoon on Saturday.

Port Stephens Marine Rescue said that conditions had been "fine and sunny with slight seas" on Saturday when the men departed Shoal Bay.

A spokesman for the organisation said wearing a lifejacket when going out on the water was vital as "unexpected emergencies can happen at any time".

A report is being prepared for the Coroner.