The siege left a trail of splintered structures in this mountain tourist town outside Rocky Mountain National Park, but there were no immediate reports of injuries.
"Gunfire was just ringing out everywhere," said Sandra Tucker, who saw the bulldozer begin the rampage from her office on Main Street. "It sounded to me like an automatic rifle, firing about every second."
By late afternoon, the bulldozer had come to a stop stuck in the rubble of a metal warehouse. Officers clambered on top, apparently trying to talk to the man, whose condition was unknown.
The cab of the yellow bulldozer was protected with black metal plates apparently welded on over a period of weeks in his muffler shop.
"It looked like a futuristic tank," said Rod Moore, speaking by phone from his auto garage and towing company.
He said the dozer rumbled past within 15 feet of his shop, with an officer perched on top, firing shots into the top. At one point, he said the officer dropped some kind of explosive down the exhaust pipe.
"He just kept shooting," Moore said. "The dozer was still going. He threw what looked like a flash bang down the exhaust, it didn't do a thing."
Authorities with the Grand County sheriff's office and town police did not immediately return calls. The State Patrol said all roads in and out of the town 50 miles west of Denver were closed.
County manager Lurline Curran said the man was reportedly angry over the zoning dispute that he lost.
"He evidently proceeded in destroying the properties of people involved with that," Curran said. She said she had heard the man spent two months fortifying the bulldozer in his shop.
Ian Daugherty, a bakery owner, said the driver was upset a concrete plant had been built too close to his business. The driver, Daugherty added, "went out of his way" not to harm anyone.
State Patrol Maj. Jim Wolfinbarger said officers told him the driver had aimed his weapon at propane tanks. Gov. Bill Owens alerted the National Guard and was prepared to send troops to the town if requested, but local authorities had not asked for that help, Owens spokesman Dan Hopkins said.
The bulldozer also knocked out natural gas service to City Hall and a cement plant, damaging a truck and part of a utility service center, Xcel Energy spokesman Mark Stutz said.
Granby is a town of about 2,200 at nearly 8,000 feet. It is near the Winter Park ski resort and not far from the edge of Rocky Mountain National Park.
The scene was reminiscent of a 1998 rampage in Alma, another town in the Colorado Rockies. Authorities said Tom Leask shot a man to death, then used a town-owned front-end loader to heavily damage the post office, fire department, water department and town hall.