I would call CPS and let them know you are willing to provide care for your niece. It's possible she might be briefly placed in a foster-care setting, but there is always a preference for capable, responsible family members to provide care when possible.
She won't be whisked away forever. It's also possible they may try other interventions (such as services to your sister) before the child is removed from her care. It depends on a lot of factors.
I would call, though--it's terrible for both kids to be in this kind of home situation.