In a televised address from a summit in Brussels, Belgium, he called the incident a “pure terrorist attack.”
Hollande said a body had been found, along with a severed head with a message.
A suspect has been arrested and identified, he said, and a large contingent of police has secured the site.
The attack took place just before 10 a.m. local time (4 a.m. ET), he said, when a vehicle was driven at high speed into the factory site and into a building housing gas canisters.
“There is no doubt that the intention was to provoke an attack, an explosion,” he said.
Hollande expressed his condolences and solidarity with the victims of the attack.
Witness: Islamist flags
French news agency AFP earlier reported that a suspected Islamist attacker pinned a severed head covered with Arabic writing to the gates of the factory
A source cited by BFMTV also said a severed head had been put in front of the company, next to which was found an Islamist flag. CNN has not been able to confirm the report independently.
A man described as a witness, whose name was given as Patrice, also told BFMTV that a group of men carrying Islamist flags forced their way into the factory, beheaded a person and targeted gas tanks.
Le Monde newspaper cited unidentified sources as saying that two people rammed a vehicle into the building, causing the explosion. Banners in Arabic that haven’t yet been examined were found at the scene, the paper added.
The Paris prosecutor’s office said its anti-terrorist section was opening an investigation into the attack.
It is investigating possible murder and assassination attempts by organized gangs in relation to a terrorist enterprise; destruction and degradation resulting from explosive materials by organized gangs in relation to a terrorist enterprise; and terrorist conspiracy to commit crimes against people, the Paris prosecutor’s office said in a statement.
Security stepped up
A spokeswoman for the company concerned, Air Products, confirmed there had been “an incident” at its Grenoble location.
Spokeswoman Nicola Long said emergency services were at the scene. There was an explosion, she said, and a fire that has been put out.
She was not able to give any information on any deaths or injuries. The company supplies gases for industrial use.
Interior Minister Bernard Cazeneuve is at the scene in the small town of Saint-Quentin-Fallavier, between Lyon and Grenoble.
Security has been heightened in France since an Islamist terror attack in January, when attackers targeted the satirical Charlie Hebdo magazine and a kosher supermarket in Paris.