Police have asked the public to avoid the area. Two metro stations on the Champs-Elysees, one of the city’s most popular neighbourhoods for tourists, have been closed.
A spokesman for the French interior ministry, Pierre-Henry Brandet, said the driver’s car exploded as he tried to ram a police vehicle.
Mr Brandet said the driver, who appeared to have acted deliberately, was dead.
The car is described as having gone up in flames after the attempted ramming. Reports suggest the attacker was badly burned.
Associated Press cited an eyewitness account by a journalist for French newspaper Liberation, Eric Favereau, who was driving a scooter behind a gendarmes convoy.
Mr Favereau said he saw a car blocking the convoy’s path and then saw an implosion in the vehicle.
The gendarmes broke open the windows of the car while it was in flames and pulled its occupant from the car while others attempted to extinguish the flames.
Police say the situation is now under control, and a bomb disposal unit is on the scene.
The Paris prosecutor’s counter-terrorism unit has now opened an investigation into the incident.
Mr Brandest described the bomb disposal operation as “under way to ensure the vehicle poses no further danger.”