The incident happened just after 2:30 p.m. at the Briarwood Apartments on Walnut Avenue.
Officers initially responded to what the Tustin Police Department described as "a domestic incident that was updated to a possible homicide."
When officers arrived, they encountered a man and later found a woman lying on the floor inside the residence.
"The male subject advanced on the officers with the knife and an officer-involved shooting occurred," the police department said in a news release. "The officers immediately began life-saving measures; however, the suspect succumbed to his injuries."
Residents described a heavy police response and the sounds of gunfire.
"They kind of stormed in from this entrance here... they kind of ran up to the apartment door, and they breached the door," resident Matthew Padilla said.
Neighbor Breana Perez said it was a "domestic incident between a husband and wife."
"The wife was unfortunately murdered," she said.
Other residents said they initially did not realize the seriousness of the situation.
"I did hear the shots. I was working upstairs, and it was one of those where I thought, 'Oh, that must've been fireworks or something,' and then I heard the sirens," resident Lindsay Bebout said. "Then five minutes later, I walk outside, and I see everybody."
"There were a few gunshot sounds just like in the area," resident Sebastian said. "My neighbors had heard that there was some gunshot sounds that they heard around the pool area."
Investigators said the man was pronounced dead at the scene. They also said the woman had been dead for some time before officers arrived.
Neighbors said police had previously been called to the couple's apartment. Some neighbors said they often heard them fighting.
"Something like that is so close to you, you really don't think that anything like that will happen, until unfortunately, it does," neighbor Bretney Lugo said.
A major crime scene investigation remained underway Monday night as authorities worked to determine the circumstances surrounding the deaths.
Police did not immediately confirm the relationship between the man and the woman.
The Orange County District Attorney's Office responded to the scene and is conducting an independent investigation into the shooting.