Toxic powder is an item used during the Mourning's Ends Part I quest. Toxic powder is made by using toxic naphtha on a range. This will create two heaps of toxic powder. It is advised not use this on a fire, or you will take damage and lose the powder.
In the quest, you need to use the toxic powder on two of the three grain sacks located near the general store. You can also use them on the grain sacks on the top floor of the church of West Ardougne.