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The firing took place around 5 am when a police team stopped a Srinagar-bound truck for checking near the toll plaza in Ban area of Nagrota.
Jammu and Kashmir Director General of Police (DGP) Dilbagh Singh said 3-4 terrorists were going to Srinagar when they were intercepted by the police team at the toll plaza.
Three terrorists were killed in the ensuing gunfight while one of them is believed to be in the trap, he said.
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The DGP said the terrorists were part of a freshly infiltrated group, who have entered this side from the International Border in Hiragnagar in Kathua district and were on their way to Kashmir Valley.
Traffic was suspended on the highway after the attack, the officials said.
Authorities have ordered the closure of schools in Nagrota as a precautionary measure.