The P51 Mustang, called the "Galveston Gal," took off from Scholes International Airport and crashed at about 11:40 a.m., witnesses said.
The dead were identified as pilot Keith Hibbett, 51, of Denton, Texas, and passenger John Stephen Busby, 66, of the United Kingdom.
"This is by far one of the most difficult things I've ever gone through. Our pilot was like a brother to me," Larry Gregory with the Lone Star Flight Museum, which owned the plane, told KHOU-TV, Houston. "He's taught me a lot about flying and everything else. And it's just devastating."
The Coast Guard recovered the two bodies from Halls Lake near Chocolate Bay, the TV station said.