Emergency services were called to Walker Street in Lake Cargelligo in the NSW Central West following reports of a shooting about 4.40pm on Thursday.
Officers attached to Central West Police District attended the scene.
"Three people – two women and a man – have died," NSW Police said in a statement.
Another man has been taken to hospital in a serious but stable condition.
A crime scene has been established with police flooding the area.
The public is urged to avoid the area and local residents are being told to stay inside.
Police are set to provide further details at an 8pm media conference.
Lake Cargelligo is a small country town about three hours southwest of Dubbo.
Police have sent a geo-targeted text message to residents telling them to stay inside and avoid the area.
A staff member at the Commercial Hotel in the centre of town, who did not wish to be named, said there had been a lot of police activity after what they believed was a shooting in a house.
"I'm just inside, trying to not be around," they told AAP.
A manager of a local motel said it was "a little bit scary" in the town and she believed more police were headed to the area.
Roy Butler, the independent member for Barwon, described the situation as "tragic news".
"It's a terrible situation, and it's still live, so we don't have much information. My thoughts are with the victims and their families," he said.
"As there has been a number of shootings and the offender has not been detained - please stay indoors until the advice changes."
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