Louisville police Officer Phil Russell said Gail Lynn Coontz, 37, was charged with killing son Greg, 14, and daughter Nikki, 10.
The children's bodies were found after University of Louisville police investigated a campus hostage situation involving a female student armed with a gun.
The woman held a worker at the health services building at gunpoint, reports CBS affiliate WLKY-TV.
No one was harmed on the campus but Louisville officers were asked by university police to check on the children, and found them dead at the home about 10 miles south of the campus.
Russell said the children suffered multiple gunshot wounds. Louisville homicide detective Lt. Barry Wilkerson said the armed student was the same woman charged in the deaths.
University police arrived at the health services building at 8:39 a.m. and found a hostage situation, university spokeswoman Cindy Hess said. The woman was disarmed shortly after 9 a.m.
University police Maj. Kenny Brown said the woman was charged with one count of terroristic threatening. He said the woman handed over the handgun to a counselor.
"When we were able to open the door and go in, the student and the counselor were both sitting on the couch," Brown said.
University President James Ramsey said she was taken from the university to a hospital psychiatric ward, while police said they expected her to be transferred later to jail.
The school sent safety alerts to student phones, cell phones and posted one on its Web site. Hess says the campus was not locked down.
University spokesman John Drees said Coontz has been a student in the college of arts and sciences at the university since the fall of 2006 and had not yet declared a major
The two-story red brick home where the children were found is in a tidy middle-class neighborhood. A garden at the home has a statue of two children playing with a bicycle. The neighborhood is about 10 miles south of the university campus.
Neighbor Patty Schneider said the area is normally quiet and the neighbors generally know each other.
"It just all seems like it's going to be a bad dream and I'm going to wake up from it," said Schneider, who lives directly across the street. "How am I ever going to look out the front of my house again?"
A next-door neighbor, Sheryl Hayven, said police stopped by her house Thursday morning asking about them. Hayven said detectives were asking when the children were last seen and if she had heard anything.
"They were good neighbors," Hayven said. "It's just kind of a shock."
Greg Coontz was an eighth-grader at Noe Middle School and Nikki Coontz was a fourth-grader at McFerran Elementary, said Jefferson County Public Schools spokeswoman Lauren Roberts. Counselors will be on hand at both schools on Friday to talk to concerned students, Roberts said.
Russell said the shooting happened sometime within the last 24 hours, but wouldn't say where the children's bodies were found in the house. Russell didn't give a motive for the shooting.
"It's a sad day for us and our community. It's something that affects us all," Russell said.
"I'm devastated," neighbor Dorothy Maymon told WLKY-TV. "I can't imagine that something like that would happen. It's like I say, I didn't know them well, but she always seemed like a sweet person. Must've been something happened that triggered such an act."