Fire and Emergency New Zealand Station Officer Josh Spence, of Dunedin City Station, said his crew was heading out to Company Bay for breathing apparatus training when they noticed someone in the water beside a dinghy near the Andersons Bay causeway about 2pm.
The fire engine turned around and stopped to help, SO Spence said.
Two children and an adult were with the stricken dinghy, about 40 metres offshore.
Firefighters used tow lines to assist it back to shore, took the children to an ambulance and assisted in getting the boat, which had taken on water, to dry land.
SO Spence was pleased to see the party had a marine radio and were all wearing wetsuits and lifejackets.
Sailors should remember to wear lifejackets and carry two forms of communications while out on the water, SO Spence said.
Police also attended and Coastguard and Surf Lifesaving were called but were ultimately not needed.
A Hato Hone St John spokesman said it treated three patients with minor injuries at the scene.
Dunedin Marine Search and Rescue Chair Martin Balch said the party did everything right but perhaps the conditions were too windy.
Wind gusts had picked up since the morning and Otago Harbor was notorious for its breezes, which could be difficult to sail in.