The incident happened at around 12.20am at Aghilly, near Buncrana.
A garda spokesperson said a man entered the house via the kitchen and made his way to the victim's bedroom.
He woke her up, removed her panic alarm and demanded cash.
The masked intruder then assaulted his elderly victim by punching her in the ribs, and threatening her.
He made off with her handbag, which contained a substantial sum of money.
Although only one person entered the house, voices were heard outside.
Two men were seen heading in the direction of Tullydish, the police spokesperson added.
They are described as wearing dark clothes and speaking with a local accent.
The elderly woman managed to raise the alarm and was taken to Letterkenny General Hospital for treatment to her injuries.
Gardaí want anyone with information to come forward.