Police say shots were fired just after 3:30 p.m. on the 800 block of North Branciforte Avenue. A second round of gunfire was reported at a different location on Doyle Street a short time later.
A witness near the scene on North Branciforte Avenue described hearing a large amount of gunfire before being ordered by police to stay inside.
The FBI, Santa Cruz County Sheriff's Department and other nearby agencies assisted in the search for additional suspects. The Santa Cruz County Sheriff's Department has taken over patrolling city streets.
Several schools in the area, including Branciforte Middle School and Costa Noa High School, were placed on lockdown due to the police activity. Parents were instructed to go to 701 Ocean Street to pick up their children.
The police department says it is notifying the officers' next of kin and had not yet revealed the officers' identities.
Santa Cruz has never lost an officer in the line of duty, according to the Santa Cruz Sentinel.
KGO-TV San Francisco, CA contributed to this report.