Police say an officer on patrol witnessed the stabbing in progress shortly after 10:00 a.m. Monday in the area of Pacific Avenue and Michigan Avenue.
He drew his service weapon, ordered the stabbing suspect, Antoinette Pelzer, to drop the knife.
She complied and was taken into custody.
Robbery appears to be the motive.
Gladys Pelzer, Antoinette's mother, tells Action News her daughter suffers from Schizophrenia and may have been off her medication.
"I feel sorry about the people she hurt all because she wanted a cigarette. That's what this was all about. And she didn't have no money to buy cigarettes," Gladys Pelzer said.
Gladys says she thought her daughter was in Cleveland where she'd been getting treatment.
The two victims, an 80-year-old woman and a 47-year-old woman, from Canada, suffered multiple stab wounds to the upper body. They were taken to AtlantiCare Regional Medical Center where they later died.
The 44-year-old suspect has three children and eight grandchildren, family she may never see again outside of a jail cell.
"I tried to get a house for me and her, but every time I get things set up, she runs," Gladys said.
Tourists walking along Pacific Avenue got an eerie feeling upon learning of the fatal stabbing.
"It's hard to believe; I don't feel very comfortable being here either; I'd rather be in New York than walking around here knowing that happened," tourist Maureen Mack said.
"We've been here for a couple of days, had a good time. As far as the boardwalk is concerned, it's wonderful, but you come out here, it's a little scary," tourist Jim Sheridan said.
Atlantic City has worked to burnish its image in recent years with new casinos like Revel and an outlet shopping district.
Thomas Gilbert, a former lieutenant colonel in the New Jersey State Police Department, now works for the Atlantic City Tourism Bureau.
"Unprovoked and random violence like this can happen anywhere and I think this could happen in Atlantic City, it could happen in Philadelphia, it could happen all over the place," Gilbert said.
Pelzer was charged with Aggravated Assault, Unlawful Possession of a Weapon, Possession of a Weapon for an Unlawful Purpose and Robbery. Further charges will likely be coming in light of the victim's deaths.