The Royal Canadian Mounted Police (RCMP) confirmed that a suspect was fatally shot in a police operation.
Canadian media said police had raided a property in Strathroy, about 225km (140 miles) south-west of Toronto.
They named the suspect as Aaron Driver, 24, who was arrested last year for openly supporting so-called Islamic State on social media.
A senior police official told the Canadian Press news agency the suspect had allegedly planned to carry out a suicide bombing in a public area.
An internal government memo seen by the CTV network said his alleged plan was to use a homemade bomb to create mass casualties.
An earlier The RCMP statement said it had received “credible information of a potential terrorist threat”.
“A suspect was identified and the proper course of action has been taken to ensure that there is no danger to the public’s safety,” it added.
“As this is still an unfolding matter and the investigation is still under way, we are not able to provide further comment at this time.”
CBC News said Aaron Driver’s family had confirmed his death.
It said police had told the family Driver had detonated an explosive device, injuring himself and another person.
Driver had been intending to detonate a second device and that was why police shot him, the report said.
Leonard Tailleur, Driver’s former lawyer, said it was “absolutely shocking” to hear about what happened.