The two assailants entered the church in Saint-Etienne-du-Rouvray, near Rouen, during mass, taking the priest and four other people hostage, including two nuns.
Police said the men killed the priest, named as 84-year-old Jacques Hamel, by slitting his throat.
An interior ministry spokesperson said a second hostage was "between life and death".
Pierre-Henry Brandet, the spokesperson for the interior ministry, said the identities of the attackers remained unclear, but that anti-terrorism prosecutors would lead the investigation.
He told reporters at the scene that the two assailants had been killed by the BRI, a specialised police group, as they came out of the church building.
Brandet said bomb squad officers aided by sniffer dogs had been scouring the church for any possible explosives.
IS group claims attack
Arriving in Saint-Etienne-du-Rouvray to be briefed by police, President François Hollande decried a "vile terrorist attack".
The French president said the assailants "claimed to be from Daesh", using an Arabic acronym for the Islamic State (IS) group, which has claimed a string of recent attacks on French soil.
The IS group later claimed responsibility for the deadly assault in a statement via their mouthpiece, the Amaq agency, saying two of their “soldiers” had responded “to the call to target” Western countries.
Police sources told French media that one of the two perpetrators was on one of France’s terror-watch lists, known as the “fiché S”. The man had been put under house arrest after attempting to reach Syria last year, the sources told AFP and iTele.
‘We will stand together’
Hollande's prime minister, Manuel Valls, expressed "horror at the barbaric attack on a church".
"The whole of France and all Catholics are wounded. We will stand together," he wrote on Twitter.
The archbishop of Rouen, Dominique Lebrun, said in a statement: "I cry out to God with all men of goodwill. I invite non-believers to join in the cry. (...) The Catholic Church has no other arms besides prayer and brotherhood among men."
At the Vatican, the pope's office condemned the "barbarous killing" of the priest, saying the crime was even more heinous because it took place in a sacred place.
Horreur face Ã l'attaque barbare d'une Ã©glise de Seine-Maritime. La France entiÃ¨re et tous les catholiques sont meurtris. Nous ferons bloc.— Manuel Valls (@manuelvalls) July 26, 2016
The incident comes as France is under high alert after an attack in Nice that killed 84 people and a string of deadly attacks last year claimed by the IS group.
The Nice attack was the third major strike on France in 18 months. Two attacks in Germany claimed by the IS group since then have also increased jitters in Europe.
After the attack in Nice, France extended a state of emergency giving police extra powers to carry out searches and place people under house arrest for another six months until January.
It was the fourth time the security measures have been extended since the IS group jihadists struck Paris in November, killing 130 people at restaurants, a concert hall and the national stadium.
(FRANCE 24 with REUTERS, AFP, AP)
Date created : 2016-07-26