According to reports, a man has been decapitated and an Islamist flag raised near a French factory in Grenoble, reports Sky News Australia.
There are also reports of a loud explosion at the factory and several other victims.
Sources said at least one arrest had been made, though there are also reports of two attackers, both carrying Islamist flags.
The man who was arrested has reportedly described himself as a member of Islamic State.
Other sources said that two men rammed the factory in a car before entering and setting off several small explosive devices.
A decapitated body was found nearby the factory, another source said.
According to a legal source, Arabic writing was found on a severed head attached to gas factory gates in Grenoble in France.
The attack came nearly six months after the Islamist attacks in and around Paris that killed 17 people in January.
Those attacks started with a shooting at satirical magazine Charlie Hebdo.