Authorities said the incident began when an officer attempted to make a pedestrian stop. Three suspects ran from the officer, and the shooting happened shortly after on State College Boulevard and Ball Road.
It was unclear why police opened fire, but authorities say a handgun was recovered at the scene.
One suspect, whom police described as a male in his 20s, was taken to a local hospital, where he later died of his injuries.
No officers were injured in the shooting.
Two other suspects were taken into custody after a search of the perimeter.
Katella High School and James M. Guinn Elementary School were placed on lockdown as a precaution. The lockdowns were lifted at about 1:30 p.m.
Ball Road was closed between State College Boulevard and Sunkist Street due to the investigation.