The victim who was killed was a priest according to a source in the police who spoke to Reuters. The source said that the attackers yelled "for ISIS" as they slit the priest's throat.
Police and elite forces surrounded the church in a suburb of Rouen, the capital of the Normandy region and eventually managed to kill the two assaliants.
Between four and six people were being held in Saint-Etienne-du-Rouvray while live TV images showed police had blocked off the roads around the church and paramedics pulling stretchers out of ambulances.
The Vatican condemned the "barbarous killing" of the priest and added that it was even more heinous because it took place in a sacred place.
The attack comes as France is on high alert after a Bastille Day attack that killed 84 people in Nice and a series of deadly attacks last year claimed by the Islamic State group.