Locals were stunned to see the Cheetah S200 fly into the ferris wheel at the Old Bar Festival near Taree, about 250 kilometres (155 miles) northeast of Sydney, and become wedged in its metalwork.

"It was a hell of a shock," resident Gary Jones, whose two sons had been on the ride shortly before the accident, told Australian news agency AAP.

Police and emergency services rushed to the plane, which apparently failed to clear the ferris wheel shortly after taking off from a nearby grass airstrip.

"I thought 'Christ he's low, he's coming in low over that' and next thing 'bang' he went straight into it," one woman told the broadcaster ABC.

A nine-year-old boy and a 13-year-old girl who were on the ride at the time of the accident were rescued unharmed after about 90 minutes, police said.

But the 53-year-old pilot of the ultra light and his 32-year-old passenger were forced to wait for another hour and 15 minutes before they could be retrieved. No-one was injured.

Local Rimian Perkins said he was nearby when he heard a noise and at first was not sure what had happened.

"I was looking at the ground, thinking I wonder where this plane is and I didn't notice for about a minute that it was in the ferris wheel," he told AFP.

"I saw the two kids. They were fine. They were just patient. They (the authorities) couldn't work out how to get them out."

An industrial crane was brought in and rescue workers climbed into a metal basket attached to its hook to be lifted up to haul the children from their seats, Perkins said.

The crane is now working to remove the remains of the plane from the structure, which some had feared could topple due to the impact.

Air safety investigators are expected to examine the circumstances of the crash.