A tower of rocks suddenly broke away from the canyon wall and came crashing down on several leisure boats, sending out a huge wave over the lake at Capitolio, in Minas Gerais state.
Videos posted on social media showed tourists shouting as the column of rock crashed into the water, smashing two boats.
Authorities said three people were still missing after others feared lost were located by telephone. Divers searched the lake.
The people hurt in the accident had broken bones and one was in serious condition in hospital with head and facial injuries.
Some 23 others were treated for light injuries, he said.
The region has been under heavy rainfall for two weeks, which could have loosened the rock face. On Saturday, a dike overflowed at an iron ore mine 300km to the east, cutting off a major federal highway.
Video images showed a gathering of small boats moving slowly near the sheer rock cliff on Furnas Lake when a fissure appeared in the rock and a huge piece toppled onto at least two of the vessels.
Edgard Estevo, commander of the Minas Gerais State Fire Department, said the accident occurred between the towns of Sao Jose da Barra and Capitolio, from which the boats had left.
The press office of Minas Gerais state told The Associated Press that the fire department had deployed divers and helicopters to help.
Minas Gerais governor, Romeu Zema, sent messages of solidarity with the victims via social media.
Furnas Lake, which was created in 1958 for the installation of a hydroelectric plant, is a popular tourist draw in the area roughly 260 miles north of Sao Paulo.
Officials in Capitolio, which has about 8,400 residents, say the town can see around 5,000 visitors on a weekend, and up to 30,000 on holidays.
Officials suggested the wall coming loose could have been related to heavy rains recently that caused flooding in the state ad forced almost 17,000 people out of their homes.
Earlier last year, the concern was a lack of rain as Brazil experienced the worst drought in 91 years, which forced officials to alert the water flow from the Furnas Lake dam.
The Brazilian navy, which also helped in the rescue, said it would investigate the causes of the accident.
Even in the dry season, in some parts of the lake the movement is so intense that the boats have to take turns to navigate on the lake, said the City Hall press office.