The man burst into the Ladbrokes branch on Crownhill Road in Plymouth around 7pm on Friday night. Police have named him as 50-year-old Alan Levers.
Brandishing what appeared to be a pistol style firearm and wearing a gasmask, local customers wrestled him to the ground and raised the alarm.
When the police arrived, the man was found to be unconscious. Attempts at CPR were unsuccessful and an ambulance was called, but the man was later pronounced dead at the scene.
David Walker, 55, from West Park, Plymouth, walked in shortly after the incident happened.
“I went in about 6.55pm, to put a bet on the football,” he said.
“When I went in there, they were on the floor, they were scuffling on the floor, I just thought it was just a fight or something.
“There were the two men, customers I think, on top of him, and the bloke on the floor. There was a bloke behind the counter and an old guy with glasses standing around.
“The bloke behind the counter told me they weren’t taking any bets and I had to leave.
“I didn’t see their faces, as they were holding the guy down at the back of the shop. I couldn’t see any mask and there wasn’t any physical movement, they were just holding him.”
The Independent Police Complaints Commission (IPCC) has been informed and the man’s next of kin have been contacted.
Chief Inspector Ian Drummond-Smith said: “This is a very serious incident.
“We cannot speculate on what has actually taken place here today.
“A full investigation has now begun and while the IPCC carry out their investigation it is not appropriate to comment further.”