A major police incident has unfolded in Melbourne with a woman shot dead by officers.

After receiving reports there was a man with a machete, officers rushed to Cecil St in South Melbourne at 5pm on Saturday.

As they were arresting him on the street, a car was driven at one of the police officers and hit them.

Know the news with the 7NEWS app: Download today

Police then shot at the car and struck the woman driving and also her male passenger.

The 34-year-old woman died at the scene and the 26-year-old man was taken to hospital with non-life-threatening injuries.

The male Senior Constable who was struck by the car was also hospitalised with serious injuries.

Homicide detectives will investigate the incident alongside the professional standards command, which is the procedure after a fatal police shooting.

Anyone with information is urged to contact police.