According to initial reports, a suicide bomber blew himself up outside a hotel near the police district in Lahore's Qila Gujjar Singh area.
Several vehicles parked near the site of the blast caught fire and gunshots could be heard from within the police district.
A splinter group of the Pakistani Taliban said it carried out the attack.
Jamaat-ul-Ahrar [The Party of Freedom Fighters], which split from the Pakistani Taliban in August, is a territorial group of militants from Pakistan's Mohmand tribal region headed by Omar Khalid Khorasani, says the BBC's M Ilyas Khan in Islamabad.
Jamaat-ul-Ahrar claimed the attack was in response to the recent executions of some of the group's members by the Pakistani government.
The group is understood to have carried out several previous attacks on Pakistani targets, including the beheading of 23 paramilitary soldiers in February 2014.
Lahore city police chief Captain Mohammad Ameen Wains said Tuesday's attack appeared to have been caused by a suicide bomber who had intended to blow himself up inside Lahore's police headquarters but had "blasted himself prematurely".
He said several other people had been injured and five or six vehicles damaged.
The shots heard nearby were fired by security personnel following the blast, the Dawn website reported.
Lahore is one of Pakistan's most liberal cities and has seen relatively few attacks in recent years.
Pakistan has suffered two major militant attacks in the last month.
At least 60 people were killed in an attack on a Shia mosque on 30 January in the southern province of Sindh, and a Taliban attack on a Shia mosque in the city of Peshawar on last Friday killed 20.
At least four people have been killed in an explosion in the eastern Pakistani city of Lahore.