Moat was surrounded by at least 10 snipers in the riverside area of Rothbury, in Northumberland, with several eyewitness accounts saying Britain's most wanted man was holding a gun to his neck.
Dozens more armed police were on standby as one of the biggest manhunts in living memory appeared to be reaching its climax.
Moat, 37, was surrounded near a riverbank after reportedly being chased down the high street. Police negotiators spent more than two hours trying to convince the former nightclub doorman to give himself up.
The drama began to unfold at around 7.15pm when Chief Supt Mark Dennett urged locals to stay indoors for their "own safety".
Peter Abiston said Moat had his back to the river and police were positioned around 20ft away from him. He added: "He looks very calm. It looks as though the police clearly have it under control."
Earlier, a police spokesman said: "A man who fits the description of Raoul Thomas Moat has been located in the riverbank area in the vicinity of Rothbury. Police are currently negotiating."