Firefighters dug with their bare hands to reach 11-year old Ciro, the last of three brothers buried in debris when the quake struck.
"There was silence for a while, they were tired. Then they began speaking again and we drew comfort from that," said Luca Cari, a firefighter spokesman.
A woman was killed in Casamicciola, in the north of the small tourist island, by debris that fell from a church, while the body of another was spotted in the rubble of a collapsed house, local media reported.
Firefighters broke into applause as a dusty Mattias, seven, was pulled free from under the bed where he had taken refuge. His 11-year old brother Ciro was the last to emerge, rescued after 16 hours in the dark and loaded into a waiting ambulance.
The boys' father, whose hands were bandaged after spending the night digging through the rubble alongside the firefighters, could be seen tearfully hugging relatives as his eldest son was saved.
Emergency workers had previously recovered the boys' seven-month-old brother, Pasquale, crying but alive, after hours of effort overnight. Their pregnant mother had sounded the alarm.
Two small communes, Casamicciola and neighbouring Lacco Ameno, bore the brunt of the quake, according to the civil protection agency.
The quake hit the northwest of the island at 8:57pm (1857 GMT) on Monday, at a depth of just five kilometres (three miles).
Italian authorities first put the quake at a 3.6 magnitude, but later revised it upward to 4.0 -- in seismic terms, a modest event.
The main earthquake was followed by 14 smaller aftershocks. Several buildings collapsed while others had large, ominous cracks.
Thirty-nine people were injured, one seriously.
"Italy is united with Ischia in sorrow for, and solidarity with, the victims. We stand side-by-side with those taking part in the rescues," Prime Minister Paolo Gentiloni said on Twitter.
'A horrible experience'
The quake struck just days ahead of the first anniversary of the 6.0 magnitude quake that killed nearly 300 people in and around Amatrice in central Italy. In October 2016 and January 2017 three other earthquakes hit the same region.
Francesco Peduto, head of Italy's National Geologists Association, on Tuesday slammed shoddy construction and a lack of earthquake prevention measures, saying a 4.0-magnitude quake should not have brought down buildings.
"It's frankly extraordinary that people continue to die for earthquakes of this size," he said.
The quake response has benefited from the presence of emergency responders who were on the island to fight forest fires that have plagued Italy this summer, local media said.
"I was on the couch watching TV. Blackout, shaking, something fell on my head. I scream, my mother grabs me and we ran outside," one witness wrote on Twitter.
Teams of firefighters, including two units specialised in extracting people from rubble, were quickly mobilised, said Bruno Frattasi, who oversees the fire department.
Ischia's only hospital was also hit and had to be partially evacuated, with five patients transferred to another medical facility by helicopter.
Restaurants were packed and many stores were still open when the shaking began, witnesses said on Twitter.
"A horrible experience, everything was shaking, plunged into darkness, houses were collapsing... a nightmare," one wrote.
Ischia is often hit by earthquakes, with its worst dating back to July 1883, when an estimated 5.8-magnitude quake killed more than 2,000 people.
Italy straddles the Eurasian and African tectonic plates, making it vulnerable to seismic activity when they move.
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