No humans were hurt in the home about 14 miles southwest of Denver.
Wildlife officials later trapped the 130-pound male cat using the dog's body as bait and killed it with a rifle shot.
Colorado Division of Wildlife spokesman Tyler Baskfield said the cat entered the house through open, unscreened French doors early Monday but he didn't know how far into the building the animal went.
It fled with the Labrador after the owners awakened.
"The people got up and looked around and saw the mountain lion's tail leaving the house," Baskfield said.
Baskfield declined to release the homeowners' names.
However, Mack and Jacquie Anderson told Denver television stations that it was their 12-year-old Labrador named Scout that was killed by the lion. Another dog sleeping in the room wasn't harmed.
Jacquie Anderson said they were awakened by a commotion in the room at around 4:30 a.m. and, when she got up to check what was happening, she realized the big cat was in the bedroom. She exclaimed that there was a mountain lion in the room and she believes that led it to run out the open doors with Scout in its mouth. The dog weighed 72 pounds.
Mack told CBS station KCNC-TV he grabbed his shotgun and flashlight but the lion was gone. They then called for help and state wildlife officers, together with a Jefferson County Sheriff's Deputy, did a perimeter search. They found Scout's body on a nearby hill covered in leaves with its neck broken.
The couple said the dogs didn't bark to warn them of the mountain lion.
The dog's owners agreed to have the dog's body used as bait. Baskfield said that was the best way to make sure the right cat was caught, because mountain lions often stash their kills and return for them later.
A necropsy - the animal equivalent of an autopsy - is planned.
Idledale is a small, unincorporated town in the foothills. Mountain lions roam the hills at the base of the mountains west of Denver and have had an increasing number of conflicts with domestic animals and people as development moves farther into the cats' habitat.
Although wild animals ranging from raccoons to bears might amble in through open doors and windows, "it is kind of strange for a large predator like that to come that close to the house," Baskfield said.
Colorado has an estimated 3,000 to 7,000 mountain lions. The Division of Wildlife is conducting studies in western Colorado and in the Boulder area, northwest of Denver, to get a better idea of the population's size and behavior.
Adult male mountain lions can grow to more than 8 feet long and weigh 150 pounds. Their tail may be one-third of their total length.