"Alcohol is believed to be involved," Seattle police spokesman Drew Fowler told a news conference.
The force of the Wednesday night collision left a debris field about a half mile from shore off Seattle's Leschi neighborhood, he said. Investigators will try to reconstruct what happened.
Three of the seven people on the 21-foot sailboat were thrown in the water, Seattle Fire Department spokesman Kyle Moore said. They included a woman in her mid-20s who died, as well as a man in his 40s and a woman in her 30s. The injured man and woman were reported in serious but stable condition at Harborview Medical Center.
Four people were on the 25-foot power boat, Moore said. One woman suffered minor injuries but declined treatment at the scene.
No names were immediately released.
The crash was reported at about 10:30 p.m. Both boats are damaged but afloat.
Neighbor Betsy Hale was on her roof when she heard the crash.
"We were asleep on our roof and we heard a loud bang and we heard people crying for help, and then many, many sirens," she said.
In addition to the fire department, multiple Seattle Police Department harbor units were called to the scene to help with the rescue efforts.
Hale said during this time of year it's not uncommon to hear boats on the water late at night, but the noises she heard Wednesday night were unusual.
"This was loud, and something was clearly not right," she said.