It can be both. And also "is she sleeping?"
"está" is the third person singular, so it can refer both to he or she (or it, of course). But in spanish we also use third person for the polite form of adress "Usted", instead of the familiar "tú"). So when we refer to Usted, even if it's second person, we use the verb in third person.
¿Está (él/ella/Usted) durmiendo?