Police were called to the flat, in Apricot Court in Sir William Jackson Grove, at 6.30pm and found the 32-year-old woman and a man in his early 40s inside.
Both victims were treated at the scene before being taken to hospital, but the woman has since been pronounced dead.
Royal Gibraltar Police (RGP) have identified the woman as Carolina Elizabeth Lishman while the man, who has not yet been named, remains in a critical condition.
The force added they are not looking for anyone else in connection with the incident and said there is no danger to the public.
In a statement, the RGP said: “The Royal Gibraltar Police wants to reassure the public in general, and the residents of Sir William Jackson Grove in particular, that there is no danger to the public.
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“Members of the RGP’s Crime and Protective Services Division have been recalled and a murder investigation has been instigated with a crime scene investigation being conducted at the residence.”
“The investigation is being led by a Senior Investigating Officer.”
Lishman, who is believed to have grown up in north London, was described as “a lovely girl” by a local resident.
The resident added: “She was very quiet. They lived in London for many years. She had two very young children.
“There are very few murders in Gibraltar.”
Police are also appealing for anyone who may have any information, however minor, that they think may be of use to the investigators to contact the RGP Duty Officer through the Command and Dispatch Unit on 00350 20072500.