Officials said some 20 masked persons dressed in black burst into the courtyard of the school in North Ossetia and threatened to blow the building up if troops stormed it.
"The hostage takers, who include men and women, are wearing martyrs' belts," Interfax news agency quoted Ismel Chaov, a spokesman for the North Ossetian interior ministry, as saying.
Xinhua quoted a duty officer at the regional Interior Ministry as saying that at least three people were killed. "One body lies near the entrance and two others are on a road near the fence. All the dead are civilians."
"The militants do not let us recover the bodies, opening fire as people appear in front of the school," he said.
ITAR-Tass said about 400 people - including 200 children - were being held captive. A regional police official said the hostages had been herded into the school gymnasium.
Warning that they would blow up the school if police tried to storm it, the attackers demanded talks with regional officials. But no demands have been made public.
In June last year, a female suicide bomber killed at least 17 people after throwing herself at a bus carrying Russian military personnel, on the outskirts of Mozdok in southern Russia.
In October 2002, Russian security forces had stormed Moscow's Palace of Culture and freed nearly 750 people, held hostage by Chechen rebels. Ninety hostages and 50 Chechen gunmen, including their leader Movsar Barayev, were killed in the operation.
More from rediff