A man has been shot dead and two people are being held hostage in a house in Brunswick.

Police are currently negotiating with an armed man who shot dead a male victim in the backyard of a home in Donald Street, in the inner northern suburb of Melbourne on Monday night.

The scene of the siege. Credit:Tammy Mills

Two women, believed to be the 82-year-old grandmother of the suspected gunman and his girlfriend, are inside the home just east of Holmes Street. They are believed to be uninjured.

The Homicide Squad, Special Operations Group and Critical Incident Response Team are at the scene.