The incident highlighted the need for more education and skills to handle those in care, Australia's top body for dementia support and education says.
"While situations like this are rare, tragically this has highlighted the need for everyone working across healthcare industries to receive compulsory education about dementia to increase their understanding, knowledge and skills in dementia care," Dementia Australia said in a statement on Friday.
The degenerative brain disease affects almost half a million Australians, including Clare Nowland, who was found with a serrated kitchen knife in the early hours of Wednesday.
Staff at Cooma's Yallambee Lodge called police and officers tried to disarm the frail 95-year-old before one fired a taser at her.
Mrs Nowland was critically injured when she fell and hit her head and is receiving end-of-life care in Cooma District Hospital surrounded by her distraught family.
NSW Police initially described the incident as "an interaction" between police and the woman and have since stood aside the senior constable who fired the Taser.
A critical incident investigation has been launched.
NSW Council for Civil Liberties called for an independent inquiry and greater protections for elderly and vulnerable nursing home residents from excessive police force.
"It's difficult to imagine any circumstances where a frail 95-year-old woman poses a credible threat to anyone - let alone two police officers," council president Josh Pallas said.
"Police should never investigate police. The NSW Ombudsman and the Law Enforcement Conduct Commission should initiate an inquiry into this because it transcends issues of police powers with mental health and ageing."
Mr Pallas said officers were not appropriately trained and misunderstood the potential lethality of tasers.
Greens MP Sue Higginson said the repeated use of excessive force was causing harm and declining community trust in police.
"This has to be the turning point for policing in NSW," she said.
"We're seeing a pattern of police response that is causing harm rather than de-escalating situations and providing the necessary care responses to some of our most vulnerable people."
Ms Higginson said staff should be trained in nonviolent de-escalation, describing the current approach as not fit for purpose.
"If the police are resorting to a taser for a 95-year-old woman, there is something deeply wrong," she said.
Improving the quality of the aged care workforce, including education on dementia care, was a key recommendation from the 2018 royal commission into the sector.
Dementia affects thinking, behaviour and the ability to perform everyday tasks, interfering with a person's normal social or working life.
The disease, which typically impacts older people, is the second leading cause of death in Australia after heart disease.