Anthony Grainger, 36, was shot once in the chest during a Greater Manchester Police (GMP) operation in Culcheth, Cheshire, in March 2012.
Police believed he was preparing for an armed robbery, the public inquiry at Liverpool Crown Court heard.
The officer, referred to as Q9, said he thought his colleagues were in "extreme danger" at the time.
Mr Grainger, a father of two from Bolton, had been under surveillance by GMP as part of Operation Shire before he was shot by Q9 through the windscreen of a stolen Audi in a car park.
Inquiry counsel Jason Beer said Q9 was in one of three armed response vehicles deployed to arrest Mr Grainger and two others.
Q9 said in a statement he was covering the occupants of the Audi from the rear window a police car and, as it was driven across the front of the stolen vehicle, he shouted "armed police, show me your hands".
He said the driver - Mr Grainger - and the front-seat passenger, who were both wearing gloves, "raised their hands above the vehicle's dashboard".
But he said Mr Grainger then lowered his right hand in a "sudden and deliberate movement".
"I thought he was reaching for a firearm. I quickly realised the approaching officers were in extreme danger," he said.
He said he fired one round at Mr Grainger's chest and saw him slump back in the seat.
The inquiry has also heard there were problems with the competency of four of the five commanding officers in the operation, including one who had failed a specialist firearms course in 2011.
Three men, all from Manchester, who were arrested at the scene were later cleared of conspiracy to rob by a jury.
The inquiry, chaired by Judge Thomas Teague, is expected to run until 21 April.
A police marksman who shot and killed an unarmed man "thought he was reaching for a firearm", an inquiry has heard.