The motive was not immediately clear but, with France still on high alert after a wave of attacks commissioned or inspired by ISIS militants since early 2015, the counter-terrorism prosecutor opened an investigation.
Some two hours after the attack, elite police cornered the suspect and shots were fired, a source close to the operation said. French media reported the assailant was holed up in a store on the Rue Epinal.
Interior Minister Christophe Castaner said the gunman was known to security services, and the local prefecture said he was on an intelligence services watchlist.
People in the city's Neudorf area and Etoile park were told to stay where they were as officers hunted the shooter on the ground and from the air.
A Reuters reporter was among 30 to 40 people being held in the basement of a supermarket for their own safety, waiting for police to clear the area. Lights were switched off and bottles of water handed out.
The European Parliament, which is sitting in Strasbourg this week, was put into lockdown.
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