Police have shut down the surrounding area and barricaded the street.
Classes are now not in session, as Princeton is on its spring break.
Negotiations with the gunman continued through the afternoon without a resolution.
As this story is developing, more information will be updated as made available. Police on the scene said the man is held up inside the eatery.
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The gunman, whose identity was not released, locked himself the restaurant on Nassau Street just after 10 a.m., according to a statement from New Jersey Attorney General Gurbir S. Grewal. "Law enforcement officials are negotiating with the man".
As a precaution, the two campus buildings closest to the restaurant - Henry House and Scheide Caldwell House - were evacuated.
Authorities said there are "no known hostages" and no one has been hurt.
Princeton Schools are having students shelter in place, but Sutter said the situation has been contained.