The bodies of the victims were found together in a back room of the home. Police are not yet able to give an exact number of the deceased but said the house was home to four people.
Detectives said three people of Indian descent were known to be living in the house located in the suburb of Clayton South. At the time of fire, it is believed that two boys aged five and 10 and their 37-year-old mother were there.
But police were yet to identify the bodies or determine exactly how many were dead, Detective Geoff Maher said.
Police are also investigating whether the house fire was deliberately lit. Arson and explosives chemists and crime scene detectives were inspecting the scene.
Maher said police were considering the possibility of a murder-suicide.
"I'm not going to confirm that at this point," he said, adding "I'm keeping an open mind and so will the investigators."
He said police were trying to contact the woman's husband, who is believed to be in India.
Police spokesman Adam West said emergency service officers found human remains after the fire was extinguished at 1.30am.
"Detectives believe that four people usually reside in the home and they are yet to be accounted for," he said.
Firefighters were called to the house just before 1 am (local time) yesterday and found it well alight, the MFB said in a statement. The fire was brought under control within 40 minutes and firefighters then were able to gain entry to the house where they found two bodies.
"We have a number of deceased in the house but we're trying to piece the jigsaw together," Maher said, adding "We're unsure of what exactly we've got at this point in time and the DVI (disaster victim identification) process and the crime scene examination will take a while."
Neighbours made a desperate bid to get to the home's occupants, using an axe to try to break through the roller shutters and reach those inside, however, they were unsuccessful.
Media reports quoted a close friend Jeanette Pereira as saying that the community was shocked at the incident.
"She was a very good lady, a very good mother. The children were very quiet. She looked after them well," she said.
She said the family had migrated to Australia from Canada.