Preliminary test results of the drug that hospitalised 12 people in Wairarapa during the weekend have come back positive for fentanyl.
This is the first time the drug has been discovered in New Zealand.
Police say the drug was sold as either cocaine or methamphetamine - it has a similar white powder appearance.
Detective inspector Blair MacDonald, National Drug Intelligence Bureau manager, said while these results are still preliminary, "it's important that we now know exactly what we're dealing with".
The analysis, by the Institute of Environmental Science and Research Limited (ESR), also indicated the sample tested contained the presence of mannitol or a similar sugar-type substance.
"What this tells us is the fentanyl was cut or diluted by this sugar-type substance," MacDonald said.
The drug is highly potent and easy to overdose on and is believed to be behind a significant increase in drug overdose deaths in the United States.
MacDonald said in North America last year, more than 60,000 people lost their lives due to a fentanyl overdose.
"The discovery of powdered fentanyl in New Zealand is of significant concern, due to the harm caused internationally by the synthetic opioid," MacDonald said.
"Just one gram of pure powdered fentanyl is the equivalent of 20,000 safe doses of the drug."
"We do not want to see that type of harm occurring in our communities," MacDonald said.
"Police are now working urgently to determine the source of the drug and its prevalence in the community."
Further sample tests related to the Wairarapa hospitalisations are ongoing.