Investigators say the 24-year-old approached two foot-patrol police on Shute Harbour Road early on Saturday morning.
It's alleged the man was brandishing a four- to five-centimetre black-handled knife as he advanced towards the officers, who drew their weapons and gave some verbal commands.
Superintendent Graeme Paine said officers fired when the man continued to advance and he was fatally injured from the shots.
Supt Paine said the officers involved were well-trained to identify and respond to different threats.
"The officers have done that. They do go through a process, even when it's a split-second thing," he told reporters on Saturday.
"The officers do make an assessment and act based on that assessment."
Supt Paine said police were reviewing CCTV footage of the incident and speaking with several witnesses.
They were investigating if the man had been involved in other incidents earlier in the night and why he was carrying a knife in such a busy public area.
The man had been working in Townsville but was from Western Australia.
Supt Paine said police were also investigating why the man approached police, and a forensic examination of the scene was underway.
"It's a tragic circumstance for the family of the young man and also for the officers involved," he said.
The shooting will be investigated by the Ethical Standards Command with oversight by the Crime and Corruption Commission.
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