The declaration was made just before 1pm after a stolen vehicle crashed outside an address on Old Caloundra Road; officers said the occupants subsequently fled on foot and are believed to be hiding in the area.
One of the individuals is believed to have a gun.
The boundaries of the emergency declaration include the Bruce Highway interchange with Caloundra Road east, and Racecourse Road south to the intersection with Fred Chaplin Circuit.
Residents in the area have been told to stay indoors, and the general public has been advised to avoid the area.
Specialist police are responding to the situation.