Melbourne's Royal Women's Hospital is investigating the accidental termination of a healthy 32-week-old foetus.
A woman expecting twins had decided to have one foetus aborted on doctors' advice after it was found to have a congenital heart defect that could have caused serious medical problems.
The ABC reports the procedure went ahead on Tuesday but the wrong foetus was terminated.
The woman then underwent an emergency caesarean section to terminate the sick foetus.
A spokesperson for the hospital described the bungle as a distressing clinical accident and a terrible tragedy.
Victoria's Health Services Commissioner Beth Wilson says the hospital will need to do a "full root-cause analysis" to find out exactly what happened and why.
She says tht information will then have to be shared with the family in an open and honest manner.
Ms Wilson says she has worked with Melbourne Royal Women's Hospital before and is sure they will do just that.