Lethbridge regional police and RCMP officers were taking part in an investigation targeting street-level sales of fentanyl, a highly addictive and deadly opioid.
Moments after witnessing the completion of a deal, with the toddler in the back seat, police intervened and arrested two women.
The women, who are 25 and 26, cannot be named because that could identify the child.
A vehicle search found 27 fentanyl pills and a small amount of crack cocaine.
The women are facing trafficking charges as well as charges under Alberta's Drug-Endangered Children's Act.
Staff Sgt. Rod Klassen said officers believed the child was at risk and decided to end the investigation and move in for the arrests.
"We're here to make sure the community is safe and when a three-year-old who has no choice in being there is involved ... obviously it's very concerning to us," he said Thursday.
"Typically these sit for months at a time before we take any action on the accused, so for us to do it right then, obviously we were concerned for the child's safety.