One police officer has been killed and two others injured in the shooting.
At least two attackers are involved, with one on the run and the other killed, an interior ministry source confirmed.
One eyewitness said a man got out of a car and began shooting "with a Kalashnikov", hitting a policeman.
The police union said the officer was killed in car while stopped at a red light with the attacker driving by.
Police are warning people to avoid the area with residents evacuated from nearby buildings.
French TV channel BFM broadcast footage of the Arc de Triomphe monument and top half of the Champs Elysees packed with police vans, lights flashing and heavily armed police shutting the area down after what was described by one journalist as a major exchange of fire near a Marks and Spencers store.
Three police sources said the shooting could have been an attempt at an armed robbery, according to Reuters.
A French Interior Ministry spokesman says it is too early so say what the motive is.
Local media reported gunfire shortly after 9pm local time in the French capital.
A helicopter has been seen flying low over the city in the wake of the shooting.
The entire area, a haven for tourists, is on lockdown as armed police secure the Champs Elysees.
Paris shooting- police officers have been injured in a shooting at the Champs Elysees
A police union said the officer was killed in a car stopped at a red light
Police say one suspect has been killed in the Champs Elysees shooting
Local metro stations have been shut down as police hunt the second attacker.
The shooting comes just a few days before France’s presidential election with the 11 French presidential candidates currently taking part in a TV debate around three miles from the scene.
The attack occurred near 78 Champs Elysee – close to several major chain stores including Nike and Apple, which are popular with tourists.
France remains on high alert following the 2015 Paris attacks.
Armed police have surrounded the scene
The Champs Elysees is on lockdown
Paris shooting – Police authorities called on the public to avoid the area
The shooting comes just two hours after a police lockdown on Rue de Rivoli – a nearby street in the heart of the city.
The Paris Metro was suspended at the station on the street as officers sealed off the road.
It is not yet known whether the street closure and the shooting are linked.
France has lived under a state of emergency since 2015 and has suffered a spate of Islamist militant attacks that have killed more than 230 people in the past two years.
Earlier this week, two men were arrested in Marseille whom police said had been planning an attack ahead of the election.
A machine gun, two hand guns and three kilos of TATP explosive were among the weapons found at a flat in the southern city along with jihadist propaganda materials according to the Paris prosecutor.
More to follow…