James Adam and Chris Bradshaw were involved in a crash at Alpine Cottage on the famous Mountain course.
Mr Adam was attended to by medics, but he was declared dead at the scene. Mr Bradhsaw was airlifted to the Isle of Man's Noble's Hospital, but declared dead after arrival.
The four-lap race was red-flagged following the crash, and it was later confirmed the rest of the day's racing programme had been scrapped. The Junior race result was declared based on the order at the end of lap one, and it is hoped the rest of today's schedule can be run on Thursday.
MGP organisers the Manx Motorcycle Club said the families of both racers have been informed and the crash is now being investigated by the police, who are preparing a report for the Coroner of Inquests.
Mr Adam first competed at the MGP last year, finishing ninth in the Newcomers race and 27th in the Senior MGP. Mr Bradshaw first competed at the event in 2004 and finished 37th in last year's Senior.
There were several other incidents during the opening laps of the Junior, including Tim Venables, winner of Monday's Newcomer A race, crashing heavily at Greeba Bridge and Dan Sayle losing control at Signpost Corner. Both were taken to hospital. It was later confirmed Sayle had been discharged after treatment, but details of Venables' condition have not been released.
During Monday's first day of racing former MGP winner and TT regular Olie Linsdell suffered serious injuries in a crash at Bishopscourt during the Post Classic Senior. He was transferred to a hospital in Liverpool where it is understood he remains in a 'critical' condition.
The Junior race got under way at 10.15am in perfect weather conditions, although a diesel spill meant that riders were warned about lack of adhesion from the Gooseneck to the 26th Milestone.
Wayne Kirwan and David Lumsden were scheduled away first, but misfortune hit Lumsden when he failed to leave the start line. He was later able to start his machine.
Kirwan was first on the roads to Glen Helen but Jules Croft and Sayle both went quicker to the first checkpoint and by Ballaugh Sayle hit the front, opening up a four second lead from Simon Fulton with Kirwan third.
After Sayle's crash, Fulton took the lead with an opening lap of 119.516mph from Michael Sweeney (118.812).
Fulton became the first rider since Seamus Greene in 2005 to break the 120mph-plus 'Tommy Club' on the second lap, with a 120.329mph – enough to break Tommy Clucas' 2004 mark and extend his race lead to 16 seconds from Kirwan with Sweeney now third.
The red flag on lap two meant the race was stopped with eight riders having completed the second lap. The regulations say a race is valid if more than half has been completed so Fulton was awarded the win by virtue of being fastest on the opening lap.
However, the decision to base the result on the order at the end of lap one means Fulton's record lap does not stand.
Details of the rearranged MGP schedule are expected later