The hostage situation began Tuesday when Jimmy Lee Dykes, 67, allegedly boarded a school bus, fatally shot the driver and took a child hostage.
The school bus driver was identified as Charles Albert Poland Jr., 66, but the child has not been identified, the Dothan Eagle reported.
A federal law enforcement agent told ABC News Wednesday the scene was an "extremely sensitive situation."
"Our agents are working very hard with the locals for the best possible outcome to this situation," he said.
Dale County Sheriff Wally Olson said multiple law enforcement agencies responded and the FBI took the lead, WNDH-TV, Dothan, reported.
The bunker was surrounded by a SWAT team.
Michael Creel, a neighbor of Dykes, told the Eagle he went outside after his sister heard gunshots.
"Me and her started running down the road," Creel said. "That's when I realized the bus had its siren going off. Kids were filing out, running down the hill toward the church."
Carol Shepard said her daughter, who was on the bus when the incident occurred, identified the man as "Mr. Jimmy," a neighbor.
"All we know is he shot the bus driver and took a 6-year-old child," Shepard said.
Witnesses and neighbors said Dykes fled into a bunker located on his property. Initially it wasn't clear whether the child was with him.
Neighbor Mike Creel said Dykes has a homemade bomb shelter on his property.
"He's the type that thinks the government's out to get him," Creel said. "He's not right in the head."
Dykes was scheduled to appear in court Wednesday on a menacing charge, the newspaper said. He was charged in December with menacing a man by pulling a gun on him.
Michael Senn, a local minister, told WSFA-TV, Montgomery, he talked to some of the children on the bus. They told him a man boarded it, ordered most of the children to leave, shot the driver and then ran off with a young boy.
Creel said he was told by some of the children the shooter demanded the bus driver turn over two children and then opened fire when the driver said he could not do that.
Police said Dykes had told them he would not hurt his hostage.
McPhee, Cokas 'working on their marriage' after affair
Duggar sisters unveil Christian dating rules in new book