The armed men entered the church in Saint-Etienne-du-Rouvray during mass, taking the priest, two nuns and several churchgoers hostage, reports said.
French TV said shots had been heard after police arrived at the scene. Both hostage-takers are now dead.
The area has been cordoned off and police have told people to stay away.
At least one person is receiving medical treatment for injuries.
There was no immediate indication of the identity or motive of the hostage-takers, but France has been on high alert since the Bastille Day attack in Nice earlier this month, when an attacker ploughed a lorry into celebrating crowds, killing more than 80 people.
The BBC's Lucy Williamson in Paris says the French government has been under huge pressure to prevent further attacks.
President Francois Hollande and Interior Minister Bernard Cazeneuve are on their way to Saint-Etienne-du-Rouvray to be briefed by police.