UPDATED 7.43pm

Three hostages have been released from a Sydney business where an armed gunman has been holed up for more than six hours.

LISTEN ABOVE: 7 News reporter Matthew Snelson, at the scene, describes the scene to Larry Williams

The three people were taken from the Alanine Signs factory in Ingleburn just after seven o'clock New Zealand time, but it's not known whether the gunman is still inside

Heavily armed tactical police have been at the scene since just before one o'clock when three people were shot, one fatally.

Three men were shot, one fatally, and a gunman remains holed up inside a southwestern Sydney business.

Heavily armed police have surrounded a sign-writing business, amid reports three people are being kept hostage inside.

Negotiators are talking to the gunman.

7 News reporter Matthew Snelson is at the scene, and told Larry Williams the situation remains tense and uncertain.

"They fear that he might have a radio or TV inside so they don't want to give us too many details as he will get them himself that way. At the moment they are negotiating with him and looking for a peaceful ending to this, but it's already dragged on for six hours, so now there are fears this may go well into the night."

Snelson told Larry Williams several more people maybe trapped in nearby buildings.

"Most of the people in the surrounding areas have been helped out but there are some that are too close to the building involved and have had to take shelter in their building".

2GB reporter Beau Mitchem is also at the scene, and told Larry Williams everything within a one-kilometre radius is locked down.

Witnesses from nearby businesses say they heard five gunshots ring out this morning and emergency services were called to the site.

Rogan Burns works nearby, and told ABC News the entire area has been in locked down since the shooting happened about three hours ago.

"My colleague actually left to go get the boss a cake for his birthday and the police came screaming in, in the vehicles, and just told everyone to get back inside their factories".

NSW police said officers found three men with gunshot wounds when they arrived but one died at the scene, while two others have been taken to Liverpool Hospital.

One man reportedly suffered a gunshot wound in the leg, while the other was shot in the shoulder.

There are reports a family dispute could be at the centre of a fatal shooting incident in southwest Sydney.

Mitchem told Larry Williams it could be a former employee who has a marital dispute.