Officials say at least 15 people survived, with some found alive inside the submerged hull of the Eastern Star.
The captain and the chief engineer, who both survived, have been detained. They say the boat, which sent no emergency signal, was caught in a cyclone.
The rescue is continuing into the night but is being hampered by bad weather.
Chinese media quoted the captain as saying the vessel sank within minutes, while many people were asleep. BBC weather forecaster Peter Gibbs says there were severe thunderstorms in the area.
Most of those on board were tourists aged between 50 and 80 travelling from the eastern city of Nanjing to Chongqing in the south-west - a journey of at least 1,500km (930 miles).
The ship sank in the Damazhou waterway section of the Yangtze, where the world's third longest river reaches depths of about 15m (50ft).
At least 15 people have so far been rescued and some with minor injuries have been taken to hospital, officials said.
One survivor, tour guide Zhang Hui, told the Xinhua state news agency that heavy rain had come through cabin windows and many passengers went into the ship's hall to keep sheets and other items dry.
He said the ship then began to toss violently, to an angle of 45 degrees.
Mr Zhang said he had "30 seconds to grab a life jacket" and tried to hold on to what he could find to keep his head above water as the vessel overturned.
He clambered out of a window in the torrential rain. "Wave after wave crashed over me; I swallowed a lot of water," he said.
Mr Zhang said he heard the cries of at least a dozen other people in the water but after about 30 minutes, they all fell silent and he finally drifted into reeds and was rescued.
Three other survivors were rescued from inside the upside-down hull of the ship after it was cut open, Xinhua said.
According to the People's Daily, three bodies were recovered in Yueyang, Hunan province, some 50km away.
Source: BBC
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