The man has been arrested and is under police guard in hospital.
Three men were stabbed by the suspect and one of them died at the scene.
"A second person has been taken to hospital with a head injury".
One of the victims succumbed to his injuries in hospital.
Australian police on Friday said a deadly knife attack in Melbourne was an act of terror, revealing that the deceased suspect was originally from Somalia and was known to intelligence agencies.
Police said there was no known link to terrorism.
When police arrived, the man punched one of the officers through their patrol auto window, Ashton told reporters Friday.
In multiple videos that surfaced, a man can be seen trying to stab two policemen who try to make several attempts to wrest the knife from the man.
Streets were closed and trams halted while police attend the scene.More news: Melbourne attack: Police link fatal stabbing, vehicle fire to terrorism
Video taken by witnesses shows a auto on fire in the area and bystanders using a shopping trolley and chair to confront the attacker.
As they got out of the auto they were confronted by a male brandishing a knife and threatening them.
One of the officers shot him in the chest, Ashton said.
Victoria Police said a bomb response unit had been called to the area and was now making the scene safe.
Two people, apparently members of the public - one with a shopping trolley - then came to the officers' aid. Police initially responded to a report of a vehicle on fire near the corner of Swanston Street about 4.20pm.
The incident comes as a trial continues into the horrifying rampage in Bourke St in January a year ago. The incident comes just hours after the trial.
James Gargasoulas is accused of deliberately crashing into pedestrians, killing six and injuring 27 others.
The attack occurred on the eve of a busy weekend in Melbourne, with a major horse race scheduled for Saturday and a national league football match the following day. Authorities believe the man was planning to use an automatic rifle during the event.
Police said the Muslim brothers were from a Somalian family that moved to Australia in the 1990s. He was detained during a raid by authorities. While the utility truck carrying barbecue gas cylinders burned on busy Bourke Street, Shire Ali stabbed bystanders and attacked police. Police believe he was acting alone.