The hostage taker, who is said to be armed with a gun, claimed allegiance to the Islamic State terror group, AFP reported state prosecutors as saying.
Amid rapid developments, Trèbes mayor Eric Ménassi told BFM TV that the man was now alone with one police officer in the supermarket and all other hostages freed.
Reuters reported that eight people were believed to be inside the store. There have been reports of injuries.
Prime Minister Edouard Philippe described the situation, which investigators are treating as terrorism, as “very serious” and Interior Minister Gerard Collomb is heading to the site, his ministry said.
Police special forces have rushed to the Super U shop in Trèbes, near Carcassonne, 91km south-east of Toulouse. Counter-terror officers are investigating, Reuters reported.
The fast-moving situation began around 11 am local time on Friday morning when the hostage taker opened fire, said the source, quoted by HuffPost France.
A witness said that the gunman reportedly shouted “Allah Akbar” when he entered the supermarket, according to sources close to the investigation, cited by AFP, although this has not been independently verified.
France’s Interior Ministry earlier said security officials were carrying out an operation at a supermarket in town of Trèbes, but gave no details.
In other developments on Friday morning, a police officer was shot and wounded, not critically, while jogging some 10km away from the supermarket.
It is not clear if the two incidents are connected.