Toby Finnett, son of Aon oil executive Paul Finnett, fell off the back of an inflatable speedboat his father was steering and became caught in the propeller blades.
Coastguard officials on the island of Paxos, south of Corfu, said the 15-year-old was severely cut by the propeller.
“He died instantly. There was no chance of rescuing him,” an official said, according to The Times.
The boy was with his father and two brothers, aged 17 and 14, when the small boat ran into choppy waters around half a mile south of the island’s port town of Gaios.
Mr Finnett, 54, is thought to be an experienced boatman and had rented the speedboat for a day excursion.
He was “initially arrested on suspicion of driving negligently”, but was released after an investigation determined the accident was caused by bad weather conditions, a Greek official said.
“He [the young boy] must have slipped off the vessel during the choppy ride,” the official added.
The Finnett family are said to hail from Littlehampton in West Sussex but are understood to be living in Houston, Texas, where Mr Finnett works as a managing director for the energy company.
A spokesman for the Foreign Office said: “Foreign Office staff are supporting the family of a British child following his death in Paxos, and are in contact with the Greek police about the incident.”