A man armed with a meat cleaver who holed himself up inside a Melbourne CBD restaurant has been arrested by police and taken to hospital in an ambulance.

The man, believed to be in his late 20s, was behaving erratically; smashing windows, throwing glass, a smart phone and an apple to the ground outside the business near the corner of Queen and La Trobe streets.

Acting Senior Sergeant Adam Tanner said police were called to the scene by staff just before 1:00pm.

"The premises ... has a substantial amount of damage to it, that was done while he was inside the premises, particularly on level one, he's smashed a number of windows," he said.

"In relation to the initial incident, police received a call in relation to a male who was armed with a meat cleaver and that resulted in our attendance."

Screams could be heard coming from the restaurant before the man was handcuffed by police just after 3:00pm.

Senior Sergeant Tanner said critical incident police were able to negotiate a peaceful resolution with the man, who he said appeared to be suffering from "some sort of mental health episode".

"He has very relatively minor injuries to his hands which was the result of glass being smashed from the premises, and he will be conveyed to the hospital to check those injuries and also his mental health," he said.

He said there was nothing to suggest the incident had any connection to religion or race, or that there was any terrorism link.

Police, public uninjured in incident

There were no customers in the restaurant at the time, though staff were evacuated from the building and traffic diversions were put in place.

Senior Sergeant Tanner said police were not aware if the man had any connection to the premises.

"There were a number of staff who were able to be removed from the premises safely," he said.

"The staff are going to be spoken to by police in relation to the matter, it obviously would come as quite a shock in relation to what happened."

A meat cleaver was recovered from the scene, however no police or member of the public were injured in the incident.

Tram services have resumed along La Trobe Street, following the incident.