Two men had shot and killed the university policeman, while he sat in his car, the district attorney's office later said. State police and the FBI found the officer there with multiple gunshot wounds.
He was transported to Massachusetts General Hospital, where he was pronounced dead.
The same two suspects then hijacked a car at gunpoint in Cambridge and initially held the vehicle's driver in the car with them, the district attorney said. They released him half an hour later at a gas station unharmed.
Police encountered the stolen vehicle and gave chase. Suspects threw explosives out the window at the officers in a futile attempt to elude capture. "The suspects and police also exchanged gunfire," the statement read.
A transit police officer was "seriously injured" and taken to hospital.
Showdown in Watertown
Police cornered the vehicle in the suburb of Watertown and set up a perimeter, as reinforcements and emergency vehicles poured into the area.
Officers quickly locked down the streets of the Watertown neighborhood after isolating the vehicle.
Police carrying assault rifles ran down the streets, according to CNN affiliate WCVB, which broadcast images from the area.
One of the suspects -- the man who could be suspect number 1 -- had been wounded during the pursuit. He was taken to Beth Israel hospital, where Doctors pronounced him dead after unsuccessful attempts to reanimate him, a hospital spokesman from said.
He had bullet wounds and injuries from an explosion.
CNN photographer Gabe Ramirez arrived in Watertown as the chase ended.
"Police were in a standoff with the vehicle just down the hill," Ramirez said. They ordered one suspect out and commanded him to strip down completely naked before putting him in a patrol car, which did not leave the scene.
The man was later released and is not a suspect in the case.
But while the man was being held, FBI agents approached the squad car, and police ordered the man back out of the car. FBI agents questioned him -- still fully undressed -- on the sidewalk.
In an early phase of the lock down, a man could be seen lying face down on the street with his hands outstretched in front of him and his legs crossed. It is unclear whether this was the man who was arrested and ordered to undress.
Explosives once more
Police requested that people in the lockdown area turn off their cell phones. Authorities suspect cell phones were used to detonate the bombs that flung metal through the crowds at the marathon Monday.
Dozens of police from various units arrived in Watertown, some in SWAT uniforms, others wearing helmets. Large crowds gathered around a trove of emergency vehicles that had congregated in the neighborhood, WCVB reported.
Homeland Security Investigations deployed agents to the scene, a Homeland Security spokesman told CNN.
Police also said they were going door-to-door, street by street, searching the Watertown area.
Area residents have been on edge after two bombs ripped through the crowd near the finish line of the Boston Marathon, killing three people and injuring 178 others.
Federal, state and local agencies are still investigating the marathon bombing.
Police, who were seeking two suspects in the attack, now believe they have found them.