The attack focused on French magazine Charlie Hebdo, which has previously published satirical images of the Prophet Muhammad.
The attack began at 11am.
Paris prosecutors say a vehicle stopped in front of the headquarters of the Charlie Hebdo magazine, and two men got out of the car carrying automatic weapons, possibly Kalashnikovs.
They entered the building housing Charlie Hebdo, asked where the magazine was located and then simply opened fire.
City prosecutor Jean Molins:
"According to a witness, one shooter shouted 'Allahou Akbar', or God is Great, and affirmed, 'you are avenging the prophet for them'."
Mr Molins says the men immediately left the building and fled in a car where the driver was waiting on a public road in front of the building.
The shooters encountered a marked police car, leading to an exchange of fire.
Second and third encounters with police then resulted in one officer being shot, and then, as Mr Molins put it, coldly slaughtered on the ground.
"The examinations of the three suspects according to this evidence followed their route towards the north of Paris, and violently crashed into a vehicle. They tried to keep going along their route but in the end had to hurriedly abandon their car, then robbed a driver of another vehicle. They seized the vehicle and fled in it."
Four of the magazine's well-known cartoonists and two police officers are among the 12 people killed.
The Charlie Hebdo magazine is no stranger to controversy.
It rose to international prominence when in 2011 it published cartoons mocking the Muslim Prophet Muhammad.
And hours before this attack, the magazine had tweeted a cartoon of IS militant leader Abu Bakr al-Baghdadi.
French President Francois Hollande says the attack was "cowardly" and has declared a day of national mourning.
He says the murders are an affront to freedom of expression and Western culture.
"We must also remain ourselves, be aware that our best weapon is our unity, the unity of all our citizens facing this ordeal."
Parisians immediately rallied against the violence, assembling at the central Place de la Republique for a silent vigil.
Hundreds also gathered in other European capitals, including Madrid and Berlin.
This Paris resident expressed his sadness at the killings.
"They were generous people, tolerant, and it's precisely because of that that they were killed by people who don't want generosity, or tolerance, or humanity, so it's awful. Devastation. And we're all here to pay tribute to them."
Two senior figures in France's Muslim community have also spoken out against the attack.
Dalil Boubakeur is the head of Paris' grand mosque and president of the Muslim Council in France.
"Truly, Islam condemns assassination, condemns murder, condemns taking the lives of those around you. Truly. And we are absolutely horrified, we are stunned."
World leaders were also quick to offer messages of condemnation and condolence.
Speaking alongside German Chancellor Angela Merkel, British Prime Minister David Cameron offered the French government any assistance UK intelligence agencies can give.
United States President Barack Obama has deplored the incident.
"For us to see the kind of cowardly, evil attacks that took place today I think reinforces once again why it's so important for us to stand in solidarity with them, just as they stand in solidarity with us."
A spokesman for the Department of Foreign Affairs says Australian embassy staff in Paris have made contact with French authorities to confirm no Australians were affected by the attack.
DFAT has asked Australians in Paris to exercise normal safety precautions following the attacks.
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