Fredericton is the capital of New Brunswick province and home to around 56,000 people. The circumstances of the shooting are unclear, but police said on Twitter that the "incident is ongoing".
Bill Henwood, whose funeral business is located inside the cordoned off area on Brookside Drive, said people sat in their cars or were just standing near the blockade of police and fire vehicles "hanging tight and waiting for word" for news.
Officers now say there is no longer a threat to public safety.
"I might've been a gunshot", he said.
She also reported that people were being escorted out of the area by police.
Fredericton Police Chief Leanne Fitch identified the dead officers as Lawrence Robb Costello, 45, a husband with four children, and Sara Mae Burns, 43, a wife with three children.
About five minutes later, he could hear similar noises near his home.
David MacCoubrey said he awoke in his Brookside Drive apartment at 7:07 a.m.to the sound of gunshots "10 metres from my bed".
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Prime Minister Justin Trudeau on Twitter said his "Heart goes out to everyone affected by this morning's shooting".
Gaudet said police entered the shooter's apartment in the residential area of the city north of downtown, and arrested a 48-year-old man. "We're following the situation closely".
The shooting incident began at about 7 a.m.at an apartment complex on Brookside Drive.
Another police tweet said two of the four people killed were police officers but gave no details and did not release the names of the victims.
By Friday afternoon, a memorial of flowers and messages was growing in front of the Fredericton police station.
After calling 911, Morehouse said he looked out the window again and saw two police officers lying on the ground.
"That's when they (police) were shot", Gaudet said.
"Not enough can be said about the courageous efforts shown today and everyday by members of the Fredericton Police Force, the first responders involved, and all those who respond to the call for help".