A man has been found decapitated at a gas factory near Lyon in France after an attack that police suspect was carried out by one of his employees.
The body was found after a car rammed into the factory causing an explosion that put France on its highest alert amid fears of a terror attack.
Within hours a man was arrested who officials said had been investigated over possible ties to radical Islam.
His boss, the owner of a delivery firm, was the man found beheaded, police say.
The delivery company had made regular trips to the factory, which is owned by the US-based company Air Products, Dauphine Libere newspaper reports.
Few details of the killing have been released, but the businessman's head was reportedly found on a post at the factory, in Saint-Quentin-Fallavier, some 40km from Lyon.
Mr Hollande said the decapitated body had "inscriptions" on it. The French interior minister said: "A flag with Arabic writing on it was found at the scene."
A terror investigation was launched immediately after news of the attack emerged, and a maximum alert declared.
At a press conference soon after the incident, Mr Hollande confirmed that two attackers had targeted the chemicals factory at around 10:00 local time.
He said a car made it through the factory gates before ploughing into gas canisters, sparking an explosion that injured two people.
"We have no doubt that the attack was to blow up the building. It bears the hallmarks of a terrorist attack," he said.
One of those arrested within hours of the attack was a man officials named as Yacine Sali, 35.
Mr Sali had been "under investigation for radicalisation but this investigation was not renewed in 2008. He had no police record," France's Interior Minister Bernard Cazeneuve said.
The suspect's partner spoke to Europe 1 radio earlier and expressed shock at the news of his arrest, saying he had left for his delivery job as normal and did not come home.
She has since been taken into custody.
Local media reported the arrest of another suspect who was believed to have been driving back and forth past the factory before the attack, but this has not been confirmed.
Air Products makes gases and chemicals for a wide range of industries, including technology, energy, healthcare, food, and has employees in 50 countries around the world.
"We can confirm that an incident occurred at our facility in L'Isle-d'Abeau, France this morning," a company spokesperson said.
"Our priority at this stage is to take care of our employees, who have been evacuated from the site and all accounted for."
Prime Minister Manuel Valls ordered security to be stepped up at sensitive sites around Lyon.
Mr Hollande, who left the EU summit in Brussels early to return to France, made reference to the attacks on Charlie Hebdo magazine and a Jewish supermarket in and around Paris in January that killed 17 people.
"We all remember what happened before in our country. There is therefore a lot of emotion," he said.