The early morning attack in Sagamihara, west of Tokyo, is the worst mass killing in the country since the end of World War Two.
Police arrested a male former employee, who went to a nearby police station and allegedly admitted to the killings. He is reported to have said he wanted disabled people to disappear.
The 26-year-old was named in local media as Satoshi Uematsu. The Tsukui Yamayuri Garden facility, where the attack happened, is set in extensive grounds with separate living quarters for men and women. It had about 160 residents at the time of the attack, according to local officials.
Reports say the attacker entered the facility at about 02:30 local time (17:30 GMT) and began stabbing people. Eight staff members were on duty at the time. The victims were aged between 18 and 70, the Kyodo news agency said citing the Sagamihara City Fire Department. Another 25 people were injured, 20 seriously.