Reports say they are armed with automatic weapons, swords and crude bombs. Initial reports suggest that six to eight gunmen were inside the establishment, detaining about 20 hostages.
Police said the gunmen attacked the Holey Artisan restaurant in the Gulshan district of Dhaka, the epicenter of wealth and elite power in Dhaka and is popular with expatriates.
The assault that began around 9 p.m local time on Friday.
Reports say two police officers were slain and 40 injured during the standoff with the militants.
Officers of the Rapid Action Battalion, an elite paramilitary police unit, have taken up position outside of the upscale restaurant.
Islamic State, which has claimed the attacks.
Islamic State claim 24 people had died but the Bangladesh police are denying that.