According to WHTM-TV, the shooting occurred Thursday about 10:30 p.m. at P.J. Harrigan's Bar & Grill on Atherton Street in State College, Pa. The bar is located inside the Ramada Hotel & Conference Center and about two miles from Penn State University's main campus.
WATCH: Raw video from shooting scene inside bar
Police have identified the gunman as 21-year-old Jordan Witmer.
They said Witmer shot and killed one person, identified as 62-year-old Dean Beachy of Millersburg, Ohio.
Two other victims, a man and a woman, were also shot and rushed to the hospital in critical condition.
WATCH: Police chief speaks about shooting near Penn State
Authorities said the 21-year-old man from Bellefonte drove away from the bar, crashed his car, and broke into a home.
Once inside, they said he shot and killed the homeowner before shooting and killing himself.
The male victim has been identified as 83-year-old George McCormick.
Police said McCormick's wife locked herself in the bathroom and called 911.
"It's Happy Valley. We like to think these things can't happen here. But one of the things it makes you realize is that it can happen here and it does happen here. I guess it's a sign of the times in the world we live in here," said State College Police Chief John Gardner.
Penn State issued the following statement Friday morning:
The safety of our students is a top priority at Penn State. Our thoughts are with those in the State College community impacted by this tragedy. State College Police responded to the shooting in the borough last night as it was not on Penn State's campus. The alert system includes incidents that are within Clery-reportable locations. Nevertheless, we understand our community concerns and the University will continue to review processes.
It is unclear what motivated the shooting spree or if Witmer knew any of the victims.
"We're still trying to piece together this tragedy and try to make sense of it," Gardner said. "But the more I think about it, there's no sense to it."
WHTM-TV and The Associated Press contributed to this report.