It's thought a middle-aged man stabbed an elderly woman, understood to be his mother, at a home on Northcote Street, Auburn, about noon (AEDT) on Wednesday.
As she lay bleeding outside the house, police believe the knifeman then turned on another middle-aged man, stabbing him several times around the upper torso and head and chasing him about 100 metres down the street.
Police say they quickly arrived at the scene, which was close to a school, and ordered the suspect to drop a knife.
The weapon was seized and the man was being questioned on Wednesday afternoon, while the two victims were being treated for "extensive" wounds, mostly around their heads.
A third middle-aged man, believed to be another of the woman's children, was turned away from the police cordon shortly after 4pm and told to head to Westmead Hospital.
The distressed man said he had come to visit his mother but as he rushed from the scene he told reporters: "I don't know (anything)."
Flemington Local Area Command Acting Inspector Karl Leis scotched reports the victims were attacked with a machete or axe.
"The weapon that was used in this particular attack did result in quite horrific injuries to the two victims," he told reporters at the scene.
"We believe that after the woman has been injured and she's been left lying in the front yard of the premises, the altercation has then spilled further down the street ... we do believe the incident stems from a domestic incident."
He was unable to comment on whether the family was known to police.
Police will not confirm the relationship between the man in custody and the two victims.
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