Hundreds of federal police arrived in six planes on Saturday morning. Isolated gunshots were heard in the city, famous for its colonial architecture, cuisine and indigenous crafts.
At least three people, including an American freelance journalist were shot and killed on Friday when men in civilian clothes opened fire on the protesters.
A Mexican newspaper named the attackers and said they were local police.
The US Embassy in Mexico also said police may have been involved in the shootings.
About a dozen people, mostly protesters, have been killed since the conflict began five months ago, when striking teachers and leftist activists occupied much of the city, chasing out police in an bid to oust state Governor Ulises Ruiz.
The crisis has escalated with frequent shootings as protestors barricaded themselves.
President Fox's office declined to say if the federal police would try to take control of Oaxaca.
Critics accuse the governor of corruption and repressive tactics against dissenters, whose roadblocks and vigilante tactics have driven foreign tourists from the city and damaged business business.
Last week a policeman accused by a mob of áttempting to burgle a home was tied to a lamp post by a mob and severely beaten.