Emergency services were called to Our Lady of Consolation aged care home in Rooty Hill in Sydney's far west around 11.35pm on Thursday.
Police officers located the body of an 84-year-old woman inside the building.
A 53-year-old woman, believed to be known to the 84-year-old, was arrested at the scene and was taken to Mount Druitt Hospital for medical assessment.
Superintendent Darrin Batchelor said the woman was distressed when police arrived at the scene.
"What we believe at this stage is that the 53-year-old female allegedly administered a substance to the older woman," he told reporters on Friday.
"We don't know exactly what that substance is at the moment and whether it contributed to her passing last night."
He noted the younger woman had no criminal history or medical training and has been compliant with officers.
"It's really too early to determine what the motivation is at the moment, whether it was an assisted dying scenario, we really don't know," Supt Batchelor said.
The woman has since been transferred to the local police station where she remains in custody.
A nine-year-old boy was present on the night but is now in the care of his family, Supt Batchelor said.
A crime scene has been established and exhibits are being collected by a forensic team.
A toxicology and autopsy report is being prepared as the investigation continues.
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