The hostages inside the cafe have now been there for more than 12 hours.
Here is a timeline of events from earlier in the day.
9.44am: Man seen entering Lindt Cafe, carrying blue sports bag with gun inside.
9.45am: Police called to scene.
9:50am: Police clear area and cordon off Martin Place.
10am: Cafe staff and customers pressed against windows with hands raised.
10:02am: Hostages forced to hold up flag with Islamic script.
10:45am: Sydney Opera House evacuated.
11:20am: Prime Minister Tony Abbott announces national security committee of cabinet convened for briefings.
About 1pm: Talkback host Ray Hadley claims to have spoken to a hostage who spoke under instruction of a gunman.
1:53pm: Premier Mike Baird says "we are being tested in Sydney today".
1:58pm: NSW Police Commissioner Andrew Scipione says "at least one" armed offender is holding an undisclosed number of hostages.
3:35pm: Three people – one staff member and two others – seen running from cafe.
4:04pm: NSW Deputy Commissioner Catherine Burn says the number of hostages is fewer than 30
4:59pm: Two female employees of Lindt run from cafe.
8:20pm: Premier Baird and Police Commissioner Scipione foreshadow extension of hostage crisis into Tuesday. Scipione says the Lindt Cafe is the only building in the city police are now interested in.