Police attended a home in the suburb of Bentley, in Perth's south-east, following the incident which authorities say occurred at about 6:15am on Tuesday.
Officers located the body of the 35-year-old mother inside the family's Mill Street home, WA Police Major Crime Acting Inspector Jessica Securo told reporters.
The girl was also stabbed but managed to flee the house, making it to a nearby highway for help.
Bystanders provided the girl with life-saving first aid and she was taken by ambulance under lights and sirens to Perth Children's Hospital.
As of 1pm Tuesday, the girl remained in a critical but stable condition.
The 16-year old was arrested shortly after the incident and is assisting police.
Acting Insp Securo said there was no ongoing risk to the wider community.
"While the investigation remains in its early stages, police are investigating this as a suspected family violence homicide," she said.
"This incident will have a significant impact on the family, friends and loved ones of all those involved.
"Our thoughts are with them all, particularly the 12-year-old girl."
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