The body of the 31-year-old man, who is yet to be formally identified, was found in a room at the Swanston Centre facility in Geelong about 2am on Monday.
The intensive mental health care centre, run by state-owned Barwon Health, has previously faced scrutiny over patient care and union calls for action on pay and occupational violence.
Late on Monday, police told AAP the scene had been cleared but investigations were ongoing.
A male patient, who was known to the 31-year-old, was under guard and yet to be interviewed, a spokesperson said.
Barwon Health said the dead man was housed in the centre's acute mental health ward.
"We extend our condolences to the family of the deceased patient. Support has been extended to staff," chief medical officer Ajai Verma said in a statement.
Health Minister Mary-Anne Thomas said the incident was very distressing, but declined to comment further citing the police investigation.
The Health and Community Services Union said the death reflected ongoing concerns about staffing levels, workplace safety and the ability of staff to care safely for patients.
"Many legacy beds remain on that site. These beds are not at a standard we're seeing at new mental health builds and refurbishments of other mental health facilities," assistant branch secretary Rebecca Sprekos told AAP.
Ms Sprekos said staff had repeatedly raised concerns about insufficient staffing, long hours, fatigue and the lack of resources to safely manage high-risk situations.
"It is essential that these warnings are finally heeded by the Victorian state government," she said.
Ms Sprekos called for the government to legislate ratios and staffing profiles for "all disciplines in the public mental health system".
The office of Mental Health Minister Ingrid Stitt did not immediately respond to a request for comment on the demand.
WorkSafe inspectors would investigate to see if further action was required, a spokesman said.
Barwon Health was in 2025 charged under workplace laws after a patient died by suicide while undergoing treatment at the centre in 2022.
The case remains before the court.
In 2024, a coronial inquest was launched after a patient was discovered unresponsive by staff at the centre and later died.
Several years earlier, Barwon Heath pledged to make changes at the facility following the death of Natasha Ablett, the older sister of AFL great Gary Ablett Jr.
Ms Ablett absconded in 2017 and died of a drug overdose.
There is a focus on security at Australian mental health facilities after recent escapes by patients in Sydney who allegedly committed serious crimes.
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