A police statement said, external emergency services were called to Walker Street near Yelkin Street following reports of the shooting.
Two women and a man have died.
The Sydney Morning Herald reports that the incident was a suspected domestic violence attack.
It also reports that authorities are still trying to locate the gunman and that heavily armed tactical police have been deployed.
Seven News reports that the gunman had fled the scene in a vehicle owned by the local council.
Lake Cargelligo is located in the centre of New South Wales and has a population of about 1,500 people.
The incident comes after last month’s mass shooting at Sydney’s Bondi Beach which killed 15 people.
