Carole Greenwood rescued the youngster from the bottom of the seven-foot deep pool and managed to get her breathing, but hospital doctors could not save her life.
Police are describing the death as "unexplained" after officers were called following the report of a child drowning at the Dalmeny Hotel on South Promenade in Lytham St Annes, Lancashire.
A 40-year-old woman from Galashiels remains in police custody after being arrested on suspicion of murder and child neglect.
Mrs Greenwood, from St Annes, is a member of the leisure club at the hotel and was getting ready to take her grandson, Riley, aged two, swimming in the pool when the incident began.
She said: "I was in the changing rooms and a lady came in and said 'There's an incident in the pool, is there a life guard?'
"The child was on the bottom of the pool, so I dived in."
Mrs Greenwood, a former pool attendant, life guard and swimming teacher, added: "I wasn't really aware of what had happened when I got there, my concern was with the little girl and rescuing her and resuscitating her.
"She was on the bottom, she was unresponsive and I pulled her out as per my training and then I resuscitated her on the side.
"I did manage to resuscitate her and she was breathing when the ambulance arrived.
"Obviously I'm devastated for the poor little girl, it's very sad.
"Basically children in swimming pools should be looked after by their own parents.
"Life guards are there to prevent accidents and parents have got to be aware that children can't swim."
The girl was pronounced dead in hospital in Manchester and a post mortem examination will take place.
Detective Chief Inspector Dean Holden from Lancashire Police, said: "We are treating this tragic incident as an unexplained death and are continuing to investigate just how the child has come into difficulties in the pool.
"Our thoughts remain with the child's family at this sad time."
Hotel guest Simon Barr said: "I think it's totally tragic for somebody to come on holiday, we have a three-year-old child as well, to come away on holiday and all of a sudden this to happen."