The woman, Bettie Jones, and Quintonio LeGrier, 19, were both shot and killed after police responded to a domestic disturbance call.
"Upon arrival, officers were confronted by a combative subject resulting in the discharging of the officer's weapon which fatally wounded two individuals," Chicago police said in a statement.
"The 55 year old female victim was accidentally struck and tragically killed. The department extends it's deepest condolences to the victim's family and friends."
The officer will be on administrative duty for 30 days while an independent police review authority investigates, Chicago police said.
Police did not say what, if anything, Jones and LeGrier had to do with the reported disturbance.
But LeGrier's family said the Northern Illinois University student suffered from a mental illness and threatened his father with an aluminum bat, CNN affiliate WLS
The teen's father called police and then called his downstairs neighbor, Jones, to open the door when officers arrived, WLS said.
When police came, LeGrier was charging down the stairs still carrying the bat, the affiliate reported. Police opened fire, and both LeGrier and Jones were shot.
"An innocent lady got shot as well because the police were trigger happy," LeGrier's mother, Janet Cooksey, told WLS. "I went to the hospital. My son has seven bullet holes in him."
Follows protests against Chicago police
The shooting came two days after protests against Chicago police officers' actions
-- including the killing of black teenager Laquan McDonald -- shut down parts of the Magnificent Mile, a high-end shopping district in the city.
"Sixteen shots and a cover-up!" the Christmas Eve protesters chanted.
They were referring to the fact it took 13 months before authorities released surveillance video of the 17-year-old's shooting
. Jason Van Dyke, the white Chicago police officer who killed the teenager, was charged with first-degree murder. Van Dyke -- who has a history of complaints against him
, mostly for excessive force -- has pleaded not guilty.
That case contributed to Garry McCarthy losing his job as Chicago's police superintendent
and spurred calls for Mayor Rahm Emanuel to resign
. The graphic nature of the video, in which Van Dyke is shown shooting McDonald not long after arriving on the scene, didn't help. Nor did the fact that this footage didn't square with other officers' accounts on the scene.
Homicides overall, not just officer-involved shootings, have been a major issue in Chicago. The city has had more homicides in the past few years than New York and Los Angeles, which are more populous cities.
Emanuel acknowledged the public discontent in a speech earlier this month, saying his city needs "a painful and honest reckoning
into what went wrong" in the McDonald case and beyond.
The mayor has already welcomed a U.S. Justice Department investigation
into whether Chicago police have made a habit of violating the law.
"We will be a better city for it," Emanuel said. "It is in our self-interest, because we need [federal] assistance to make the fundamental and necessary changes."