Police sealed off the area behind Shrewsbury Sports Village near to Pimley Manor in Sundorne at about 10:00 GMT.
No shots were fired and the incident reached a "peaceful conclusion", said West Mercia Police.
A 42-year-old Shrewsbury man was arrested on suspicion of firearms offences.
Armed officers and police negotiators were at the scene for about three hours, the force said.
Witness Dave Mellor, who owns a cycle shop in the town, said: "There was a little bit of shouting and when I came out [of the woods] there were police dogs and armed response guys.
"I could see where [the man] was through the trees but I couldn't see what was happening. I didn't really know what was going on.
Supt David McWilliam said: "The incident was dealt with very professionally and we have tried to minimise disruption to the wider local community.
"Officers remain at the scene and will be providing reassurance to the local community that there is no continuing threat."
A man was arrested after police were called to reports of a gunman in a wood behind a sports centre.