Almost 20 firefighters battled the blaze which broke out on Park Road, near York Street, just before 6am.
Flames ripped through the upper-level of the two-storey home, burning so intensely they caused the roof and walls to collapse.
A woman inside the home was alerted to the emergency by a working smoke alarm and was able to wake the other resident.
They both made it out of the property safely, without injury.
FRNSW crews battled for almost an hour to contain the fire, preventing it from spreading to four adjoining townhouses within the complex.
The neighbours were evacuated from their homes as a precaution.
The fire was extinguished by 7.30am however, crews remained on-scene for several hours to douse hotspots.
The townhouse was destroyed.
Experts from FRNSW’s Fire Investigation and Research Unit (FIRU) are working to establish where and how the fire started.
Lucky escape in townhouse fire
FIRE and Rescue NSW (FRNSW) is crediting a smoke alarm for saving the lives of two people as fire engulfed a townhouse at Auburn last Thursday.
