A sheriff's deputy responding to an emergency call got into a short shootout with the gunman, but the officer was not injured.

"We are approaching this as an active-shooter situation," Napa County Sheriff John Robertson told reporters. "There was an exchange of gunfire by both our deputy and the suspect. There were many bullets fired."

Larry Kamer said his wife, Devereaux Smith, was at a morning staff party and told him by phone that the gunman had entered the room quietly, letting some people leave while taking others hostage.

Smith, a fundraiser for the non-profit Pathway Home, was still inside the facility's dining hall and was not allowed to leave, he said. The Pathway Home, a privately run program on the grounds of the veterans home, treats veterans of the Iraq and Afghanistan wars with post-traumatic stress disorder.

The three hostages were Pathway House employees, California Highway Patrol Assistant Chief Chris Childs said. The gunman, who had a rifle, was confined to one room and authorities were trying to reach him on his mobile phone and facility landlines as hostage negotiators stood by, he said.

Police evacuated the property and closed off nearby roads. An armoured police vehicle, ambulances and several firetrucks were at the facility, which houses about 1000 residents.

Army veteran and resident Bob Sloan, 73, was working at the home's TV station when a co-worker came in saying he had heard four gunshots coming from the Pathway Home. Sloan sent alerts for residents to stay put.

The Pathway Home, a privately run program on the veteran home's grounds, treats veterans of the Iraq and Afghanistan wars with post-traumatic stress disorder (PTSD).

In an interview with NBC, State Senator Bill Dodd said the gunman was a veteran who had recently been kicked out of the Pathway Home Project program.

According to scanner traffic, dispatchers told responding sheriff's deputies that the man was wearing all black and possibly wearing body armour.

"People are starting to get concerned because it's been going on for so long," he told AP by phone from inside the lockdown.

Except for helicopters buzzing overhead, the home was eerily quiet, Sloan said, adding that he could see police with "long-barrel assault-type weapons" crouching around the building, some taking cover behind trees.

Jan Thornton of Vallejo, California, was among hundreds of relatives worried about how their loved ones were coping with the lockdown. Thornton said her 96-year-old father, a World War II fighter pilot, was inside a hospital wing and that she had reached one of his friends who said he was safe.

Still, she worried about the stress of the lockdown, considering her father's age and that he has PTSD and some dementia. Thornton said her "heart just bleeds for the people that are being held hostage."

A group of about 80 students who were on the home's grounds were safely evacuated after being locked down, the sheriff said.

The California state Veterans Affairs department says the home that opened in 1984 is the nation's largest veterans home, with about 1000 elderly and disabled residents.