Quick-thinking Andrew Paton, 13, cut the boat’s engines to stop Sandy Malcolm from being injured by the propellor.
Then he guided the craft back to where his grandfather had fallen overboard so he could get a rope around him.
All the while, he was on the phone to the coastguard, who alerted a rescue boat and RAF helicopter.
The youngster eventually managed to get freezing Mr Malcolm out of the water with help from a family on a passing boat.
Despite his actions, Andrew is “embarrassed at becoming a hero” according to his mother Christine, 51, who said: “He shies away from fuss and has been very matter of fact since saving his grandad.”
The life-or-death drama unfolded on Loch Fyne, Argyll, last weekend.
Former joiner Mr Malcolm, from Tighnabruaich, Argyll, believed he was a “goner” and that his “time had come” after being thrown from the boat.
Andrew, however, had other ideas.
“I turned the boat around, restarted the engine and fought to get back to where grandpa had gone under the water,” said Andrew, from Darnley in Glasgow.
“I knew if I could get a rope around him and under his arms I could lash him to the side until help arrived. He tried to get back on board but couldn’t make it.”
Eventually, passing good samaritans Neil Harrison, his wife Fiona, their children Ruairidh and Sheena, and Ms Harrison’s father Iain came to their rescue. “We were never so pleased to see anyone,” continued Andrew. “Grandpa had been in the water for 30 minutes and I feared he wouldn’t last much longer.
“We will be forever grateful to the guys on that boat.”
Mr Malcolm said: “I could see Andrew on the boat and he did everything to keep me alive.
“It’s so true – I just wouldn’t be here without my hero grandson. He did everything perfectly to save me.
“I am so proud of him.
“I have been on boats all my life but I don’t think I’ll be back in the water. I am so lucky to be alive.”
Andrew’s mother, who works as a nurse, said she discovered the danger her father was in when she called them to see if they were enjoying their day trip.
“I had a sickening feeling in my stomach,” she said. “It’s a deep stretch and although they are both good sailors, I feared for them.
“It could have been so different if Andrew hadn’t acted quickly.
“Dad has heart failure and spent the night in hospital but is recovering well.
“We are so grateful to Neil and his family.”
Dawn Petrie, from the coastguard coordination centre at Belfast, said: “We were struck by how brave and sensible this young boy was.”