Whangarei Police cordoned off several streets in the south end of the city after a woman entered a shop armed with what was believed to be a firearm.
The woman, aged in her mid 30s, was seen entering the shop on Reyburn Street just after 9am.
The shop owner alerted Police and the Armed Offenders Squad was called in.
Several buildings in the area were evacuated.
The woman held a man hostage inside the shop and was seen to walk in and out of the shop.
She then pointed a firearm at Police and she was shot.
Police tried to resuscitate the woman, but she died at the scene.
Cordons remain in place on Reyburn Street, between Lower Dent St, Herekino St, and the corner of Robert and Carruth Streets, while Police carry out a scene examination.
A homicide investigation has been launched and the Officer in Charge of Professional Standards has been notified.
For further information contact Northland Police Communications Officer Sarah Kennett on 09 430 4525 or 027 494 1214.