The workmen, whose names have not been released, have both been placed in induced comas at the Royal North Shore Hospital.
More than 100 firefighters battled to contain the blaze as clouds of black smoke enveloped the suburb and surrounding areas.
“The car wrecking factory went up like a Roman candle,” a fire and rescues spokesman said.
It is believed the burnt pair were handling a gas bottle that exploded without warning. Firefighters were concerned about the many flammable items, including gas cylinders, following initial reports of explosions.
Compressed air foam tankers were called in as firefighters tried to protect adjacent factories.
The blaze — which was under control by about 6.40pm — caused major traffic disruptions around Revesby and south western Sydney.
Ambulance NSW said the two men have been treated for burns on their faces. One man also has burns on his arm.
A large plume of smoke was seen from a distance of 20km.
Fire and Rescue NSW Superintendent Greg Rankin said there were four buildings impacted by the fire — two from the wrecking yard — with serious damage caused to the site, as well as cars parked outside.
Supt Ranking said the roof of a nearby gymnasium collapsed and that building was completely destroyed.
The cause of the fire is under investigation but it is not believed to be suspicious, Supt Rankin said.