Several bystanders and police officers were attacked by an assailant on central Melbourne’s Bourke Street on Friday afternoon.
Aerial footage shows the onlooking public as the area has been cornered off by the police.
Emergency services were also called to the scene as the situation develops.
It has been reported that one person died at the scene and two more are in the hospital after a man went on a knife rampage before being shot on a busy shopping street in Australia.
Police have said the victims appeared to have been stabbed in the upper body.
In one video posted on Twitter, the man can be seen repeatedly lashing out at two officers, apparently with a knife.
Two people, apparently members of the public – one with a shopping trolley – then came to the officers’ aid.
After the attacker makes several attempts to strike one of the officers, the second officer appears to draw a gun before a single shot rings out.
The suspect can then be seen falling back on to the ground as onlookers exclaim in horror.
Mobile phone footage of those at the scene has been posted on social media showing a man lunging at police officers with a knife as a car was engulfed in flames nearby.
After taking several swings at one of the officers, the attacker was shot in the chest.
Victoria Police said they had arrested a man who was taken to hospital in a critical condition under police guard.
Superintendent David Clayton said investigators are “keeping an open mind” and there was “no known link to terrorism at this stage”.
Officers had initially responded to a report of a car on fire on the popular shopping street at 4.20pm (5.20am GMT) on Friday.
He told a press conference at the scene: “Nearby police quickly responded to the incident. As they got out of the car they were confronted by a male brandishing a knife and threatening them.
“At the same time, passers-by were calling out that members of the public had been stabbed. Police shot the male in the chest and he is now in a critical condition under guard at the hospital.
“Three people have been stabbed. Unfortunately, one is deceased at the scene. Two other victims are currently in hospital.”