The men, aged 57 and 74, were taking the animals off Shuna island in Argyll when the vessel overturned in Loch Linnhe just after 12pm.
Stornoway Coastguard said the older man was found clinging to the boat. He is said to have mild hypothermia.
The other man washed ashore near Linnhe Marina.
Both were taken to Lorn and Islands General Hospital in Oban.
Two dogs were also on the boat when it capsized, one of which managed to swim ashore and the other was rescued from underneath the upturned vessel.
The sheep were not found.