A man who held at gunpoint his former partner and a worker at a cafe on Victoria's Mornington Peninsula has surrendered to police after an eight-hour stand-off.

The 69-year-old took the two women hostage at the cafe on the corner of Point Nepean Road and Ozone Street in Rye about 7:30am on Saturday.

He was armed with two low-calibre hand guns.

Police say it was an intense morning, with at least one shot fired into the roof of the cafe.

Superintendent Glenn Weir said the man surrendered after police negotiated with him to release the women.

A police rescue vehicle and heavily armed police in Rye, where a man was holed up with two people in a cafe. ( ABC News )

"No-one's been injured which is a great result as far as we're concerned," he said.

"The skill of the negotiators and our tactical operators has been shown to be successful ... even though it takes a long time and it's disruptive to the traffic and the local area in the start of the busy summer season."

He said the man appeared to be the former partner of one of the hostages, a 45-year-old woman.

"The circumstances appear to be a combination of a family dispute between the male and one of the females, as well as a relationship breakdown and a business breakdown involved the cafe as well," he said.

He said the second woman, aged 32, worked at the cafe.

"The women are very upset, one of them - the former partner we'll allege of the offender - is very upset and she is being treated by Ambulance Victoria at this stage," he said.

"The other lady is fine, I've spoken to her myself and she is good."

He said the male was not injured in the incident and would be taken to Rosebud police station for questioning.

Local business owners alerted police to siege

Police at the scene of the stand off in Rye ( ABC News: Stephanie Anderson )

Earlier on Saturday, nearby cafe owner Anton Vigenser said he was in the middle of the morning trade when a nearby bakery alerted them to the situation.

"The police took a little bit of time to respond and in that time everyone kept calm and just made everyone aware to stay away," he said.

Police blocked off the road outside the cafe in Rye ( ABC News: Stephanie Anderson )

"It's hard because everyone knows of each other, and are friends - all us business owners are quite close.

"So it's really worrying that this can happen so quickly right underneath our noses."

The Nepean Highway was closed and police cordoned off the area.

Mr Vigenser said he was blocked into the area as police responded to the incident.

"There are heavily armed police, the riot squad, tactical police, detective, there's the whole gamut," he said.

"The local real estate has been turned into headquarters I think to coordinate everything."