According to an alert from the school, a small device was detonated in McCorkle Place at the Davie Poplar tree before 4 p.m.
Officials said one person was injured during the explosion and a suspect, who police said is a former student, is in custody.
UNC Police quickly surrounded the suspect. Eyewitnesses told ABC11 they saw the man taking off his clothes and said the man could be heard saying "Hail Satan!"
Officers told ABC11 crews at the scene that police were investigating a suspicious package in the suspect's car in Carrboro. Hours later, a bomb squad breached the vehicle and signaled all was clear.
The incident sparked a fire by the Davie Poplar tree.
According to a video captured by an eyewitness, a man is seen trying to stomp the fire out moments before the explosion occurred.
Warning: This video may be graphic for some
After the detonation, the man quickly runs away with burns to his face and arms.
PHOTOS: Man recovering moments after being burned
Student Will Freeman said he saw the suspect sitting under the tree moments before the fire started, adding the suspect starting skipping away saying, "Yes, yes, yes" once flames were present.
"I was standing right there," Freeman said. ""It burnt like alcohol or lighter fluid. So it was just there and gone really fast and he backed up and fell to the ground and just had some first- and second-degree burns."
The burned man was taken to UNC Hospitals for treatment.
The tree marks the spot where, as legend has it, Revolutionary War General William R. Davie selected the site for the University.
The tree has been struck by lightning and survived several hurricanes, school officials said.