The men were travelling home to Iona after attending a dinner and dance on the neighbouring island of Mull when their dinghy overturned in the early hours in blustery conditions . The alarm was raised by a fifth man who managed to swim ashore.
The emergency services searched for the men using lifeboats and two helicopters, one of which was scrambled from the Royal Naval Air Station at Gannet. The underwater unit of Strathclyde Police was also assisting.
The body of one of the five men was discovered washed ashore and several items of men's clothing was discovered. "We have been searching for them all day but there is no sign. By this stage you have to say hopes are fading," said a spokesman for HM Coastguard last night.
The alarm was raised at 4.15am yesterday after the survivor, Gordon Grant, the son of a local businessman scrambled ashore and woke up a farmer. Mr Grant was yesterday being treated for hypothermia at a hospital on Tobermory, Mull.
The man whose body was recovered was named last night as Robert Hay, 23, of Iona. The men who remain missing were named as Logie MacFadyen, 24, of Laggan Dorain; Alisdair Dougal, 19, of Iona and David Kilpatrick, 23, of Iona.
They were returning from a dance at the Argyll Arms Hotel at Bunessan and had launched their 14ft dinghy from the tiny port of Fionnphort to return across the Sound of Iona, about half-a-mile.
Islanders yesterday spent the day helping the rescue services. The community, famous for its role in the spread of Christianity, usually numbers around 200.
"Everybody on Iona will be devastated, stunned," said Argyll Arms proprietor Duncan MacLeod. "We know the lads reasonably well. One of the lads wasn't drinking at all, and some of the others were going out fishing today. I certainly would not say they were drunk when they left."