Police said four men were believed to have been travelling in a boat which left Brighton Marina around midnight.
The boat sunk and a man was spotted by a fishing boat two miles from Shoreham in the early hours of this morning.
Two coastguard helicopters along with several lifeboats were called and pulled two men from the water.
One, a 45-year-old from London, was rushed to hospital, police said. The other has since died.
The UK Coastguard said two men remain unaccounted for.
Andy Jenkins, controller with the UK Coastguard said: ‘“Following an extensive search of the area using multiple assets nothing further has been found at this time so the decision has been made to suspend the search pending further information. A review of the incident details will be ongoing through the rest of the day.”
A spokesman for Sussex Police said: “An investigation has been opened in conjunction with the Marine Accident Investigation Branch to establish the circumstances of how the men came to be in the water. It is thought that the boat may have left Brighton Marina around midnight and the incident may have happened a couple of hours later, but the facts are not clear at this time.”
Police are appealing for anyone with information to call 101 quoting Operation Barn.