Constable Lewis Barclay, of Dunedin police, said a Toyota Carib station wagon heading towards Port Chalmers failed to take a right-hand bend and crashed into the harbour about 8.15am on Saturday.
The 19-year-old driver managed to escape the fully submerged vehicle soon after the crash, but the 16-year-old was knocked unconscious.
Const Barclay said the 19-year-old realised his passenger had not escaped with him, and returned to the car to pull him out.
It was believed the 16-year-old had been trapped in the submerged car for about three minutes.
The driver's stepfather, Alf Charnley, said the passenger was unconscious and "a wee bit blue" when he was brought to the surface.
The pair were taken by ambulance to Dunedin Hospital with moderate injuries.
A St John spokesman said the teenagers were very lucky not to have received more serious, if not fatal, injuries.
"Fortunately for them, it turned out OK.
"It could have been a different story," he said.
Senior Sergeant Ed Baker, of Dunedin, said no charges had been laid yet.
Investigations were continuing, he added.
