Police said two people died in the accident at Goulburn, about two hours' drive southwest of Sydney, after the aircraft began experiencing "difficulty".
"Two parachutists fell from the aircraft and landed near the runway of the airport. They were located unresponsive and unable to be revived," police said in a statement.
Scott Marshall, from Adrenaline Skydive Goulburn, told The Daily Telegraph newspaper it was a "horrible day" for all those impacted by the tragedy.
"Sadly, a tandem master and passenger lost their lives. My heart goes out to their families," he said.
The incident will be investigated by police and the Australian Transport Safety Bureau.