Two fire engines from Colne and Early attended the house fire in Essex Street at 4.34pm.
A search of the house found that an elderly woman had died inside the home.
A man was taken by ambulance to the Royal Blackburn Hospital suffering from smoke inhalation.
Firefighters used six breathing apparatus and one hose reel to extinguish the fire.
Police were called at around 4.35pm and launched an investigation after the cause of the fire was deemed suspicious.
A police spokesman said: "A joint investigation between police and Lancashire Fire and Rescue Service into the cause of the fire is on-going."