The carcass was discovered by the owner of property in the 100 block of West Dunne Avenue at about 11 a.m., Morgan Hill police Sgt. Jerry Neumayer said.
The sheep was examined by a city animal control officer and officials from the state Department of Fish and Game, who agreed that bite marks on the carcass were likely from a mountain lion, Neumayer said.
A trap was set in the area to capture the animal, police said.
Many areas surrounding Morgan Hill are considered mountain lion habitat, and authorities today reminded residents to be wary of the predators while outdoors.
Residents are advised to keep an eye on small children and avoid jogging or hiking at dawn, dusk, and at night when mountain lions tend to roam around.
In the event of a mountain lion encounter, wildlife officials advise residents to face the animal, make noise and try to appear as large as possible.
For more information on mountain lions, visit the California Department of Fish and Game's website at www.keepmewild.org.