Officers were called to a property in Croftangry Road in Kelty, Fife, following a "report of concern" for the child at 6.30pm yesterday.
The toddler, named locally as Madison Horne, was taken to Victoria Hospital in Kirkcaldy, where she was later pronounced dead.
Police Scotland said: "Inquiries are at an early stage but police are treating her death as suspicious."
The force said it was following a "positive line of inquiry".
A police officer has been standing guard outside the property this morning.
Tributes have also been left at the scene including teddy bears and pink roses.
An Upsy Daisy doll is holding the message "Heaven has gained another angel. Rest in peace little one".
Local MP and former Prime Minister Gordon Brown and local MSP Alex Rowley, both Labour, said in a joint statement: "Kelty is a strong close knit community and there is universal sadness at the tragic death of a two-year-old girl last night."We know that the whole community will come together to mourn the loss of a child who has been taken from us at such a young age and we support those closest to her.
"We also know that all possible help will be given to the police and the hospital authorities as they investigate the tragedy."
A team of forensic officers was at the property this afternoon examining the scene.
More than a dozen soft toys and bouquets have been placed at the gate of the two-storey house by passing residents.
A teddy was laid with the note: "Rest in peace little Madison, now you're in the arms of the angels."
A message attached to a bunch of purple tulips read: "Sleep tight little angel. Taken far too soon."