Police said in a statement that emergency services were called to reports of three children and a woman suffering from stab wounds in a vehicle in the small town of Valley Heights, 60 km west of central Sydney, around 12:45 p.m. on Sunday, Xinhua reported.
Members of the public performed first aid before the arrival of ambulance paramedics, but one of the children died at the scene.
The other two children and the woman were all taken to hospital in critical condition.
Police said that all three children are believed to be under five years of age and the woman is in her 40s.
A crime scene has been established and police said they are not looking for anyone else in relation to the incident.