The Independent Police Complaints Commission (IPCC) said it was alleged a case was dropped when a person involved made claims against late Edward, who led the 1970-1974 Conservative party government in Britain.
Edward died at his home in Salisbury, south-west England, in 2005 aged 89.
The latest inquiry has been opened after claims made by a retired senior officer were referred to the IPCC by Wiltshire Police.
"In addition to this allegation, the IPCC will examine whether Wiltshire Police subsequently took any steps to investigate these claims," he added.
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In a statement, Wiltshire Police said: "Sir Edward Heath has been named in relation to offences concerning children.
"He lived in Salisbury for many years and we would like to hear from anyone who has any relevant information that may assist us in our inquiries or anyone who believes they may have been a victim.
Ted Heath, as he was known, lost his leadership of the party to Margaret Thatcher in 1975.
In his later years he became the Father of the House of Commons as the longest-serving MP. He was a also successful author, an avid art-collector and a world-class yachtsman.
Official secrecy around allegations of child abuse in Britain began to break after the death of entertainer Jimmy Savile in 2011, when many victims came forward to say he had abused them.