Two boys, aged two and four, were taken to Westmead Hospital in a critical condition but died a short time later.
The body of the third child, believed to be a 10-month-old girl, was found after Fire and Rescue NSW extinguished the fire.
Four other children at the premises were treated at the scene by paramedics.
Seven children were at the premises when the fire broke out at 1am, including the three who died. (Mark Evans/AAP PHOTOS)
NSW Fire Rescue Superintendent Adam Dewberry said it was a confronting scene.
"Going to a house fire you are always expecting the worst and hoping it won't be - but this was pretty confronting, absolute chaos," he told Nine's Weekend Today.
A girl, nine, and three boys aged six, seven and 11 were taken to Westmead Hospital in stable condition.
A 29-year-old woman was also taken to hospital suffering smoke inhalation.
NSW Police arrested a 28-year-old man at the scene.
He was treated for smoke inhalation and taken to hospital under police guard.
The cause of the fire is not yet known.
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