The incident took place at around 3.40pm on Thursday in front of the Beacon Leisure Centre when the car fell two metres from the promenade into the Firth of Forth at Burntisland.
Sisters Kayleigh Reid, 22, and Vicki Reid, 19, who were on lifeguard duty in Burntisland at the time, heard a revving engine followed by a splash.
It is understood the male driver, 56, had a leg brace which became jammed inside the car as it entered the water.
Vicki Reid paddled to the car on a rescue board with her sister arriving moments later having swum 250 metres and radioing the coastguard at the same time.
Emergency services arrived at the scene quickly with the Queensferry RNLI lifeboat also being sent to assist with the incident.
The driver was having trouble freeing himself from the vehicle due to his leg brace.
Two members of the public helped him and he was further assisted to the shore on the rescue board.
Three other female occupants of the vehicle aged 10, 13 and 14 had already made their way to shore and one other female, 14, had managed to get out of the vehicle before the car fell from the promenade.
All passengers were treated for shock with one being given oxygen.
Senior lifeguard Kayleigh Reid said: “It was a shock to see the car in the water like that but we were able to react quickly, provide assistance and call for back-up from the lifeboat and other agencies.
“Credit must also go to members of the public who did a great deal to help. We’re just really pleased everyone is safe and well.”
RNLI lifeguard manager Tim Doran said: “This is only the second year that we’ve had RNLI lifeguards on beaches in Fife.
“I’m really pleased with the way our lifeguards and members of the public reacted to ensure the safety of everyone involved in this incident.”