The tragedy occurred about half a mile from shore in Bantry Bay, near Adrigole harbour, at around 5.30pm.
A fourth man from America on board the Castaway, a 25ft motor cruiser, survived, a local lifeboat spokesman said. It is understood the four, including a man from the village of Glengarriff, about 12 miles from the scene of the accident, had rented the fibreglass boat, and had gone out in Bantry Bay for a sea angling trip.
The Waterford-based Coast Guard rescue helicopter, which had been on a separate mission in the Caha mountains on the Beara peninsula when the alarm was raised, was on the scene within minutes. All four men were in the water when it arrived.
An RNLI lifeboat crew from nearby Castletownbere, a Customs surveillance boat and a French-registered yacht also attended the rescue attempt.
The helicopter crew winched the four men from the water.
The local man and the two Germans were pronounced dead when brought ashore in Castletownbere. The survivor, described by those involved in the rescue as walking wounded, was rushed to Bantry General Hospital.
Paul Stevens, from Castletownbere RNLI, said the motor cruiser sank shortly after the rescue attempt.
“By the time the rescue helicopter came on the scene very quickly the four casualties were in the water,” he said. “Whether they abandoned ship we don’t know.”
Officials from the Marine Casualty Investigation Board and the garda will carry out an inquiry into the incident.
An RNLI spokeswoman said the Castletownbere lifeboat crew was paged at 5.41pm. The boat sank a short while later off Roancarrig, about seven miles from the fishing port.
Conditions were calm at the time with some light fog in the bay, the spokeswoman said.
It is understood investigations will centre on whether an explosion in the engine caused the fire.
Post-mortem examinations are expected to be carried out at Cork University Hospital.
Authorities are attempting to trace the men’s families.
The Glengarriff native was named locally as Richard Harmon, a retired farmer and auctioneer, well known in the community through his work and activism with Fine Gael.
He had been due to celebrate his 70th birthday next month.
His family and friends gathered in a pub in the tourist village as locals offered their sympathies.
One of the German men was also named locally.
Mike Schmidt had retired after moving to Glengarriff about 20 years ago. He was an experienced seaman after spending years working on the merchant navy.
The third man who died was believed to have been living between Glengarriff and the Bantry area.