The shooting happened at a condominium community near Westchester Drive and Whitemarsh Court before noon Monday.
Authorities said Craig Mueller, 45, stood in his second-floor bedroom and fired a semi-automatic weapon out the window.
Chet Thornberry, a resident interviewed by abcnews.com, described hearing "a couple dozen" gunshots, but said it did not sound like automatic gunfire.
Lisa Santana, who lives near the shooting scene, said the sound of gunfire jolted her out of bed.
"I was sleeping in my bed and I heard gunshots - five of them, maybe 10. Oh, my God," she said.
She looked outside and saw a man's body on the pavement.
Police said Mueller had shot his brother, 52-year-old Brian Mueller.
After seeing him go down, a passerby, 21-year-old Cara Ellis, ran to help him, but police say Craig Mueller was still shooting. Ellis was also struck and killed.
Within minutes of the shooting, police were knocking on Santana's door, telling her she had to evacuate for her safety.
She took refuge at the municipal building, where she was worried about her son, a seventh-grade student at a school nearby.
Schools in the district locked down to prevent students from leaving. But children were being taught in classes as usual while police sought the gunman.
"I want my son right now," Santana said. "I want to go home. I don't know what's going on. All they told us is we had to leave."
Dozens of SWAT officers and police cars were swarming the neighborhood in search of the suspect, residents said.
Craig Mueller's body was eventually found inside the home, officials said.
The brothers lived together. Ellis was not related to them, police said.
Investigators said they do not know what provoked the shooting.
"At this point it's just a mystery," Ocean County Prosecutor Marlene Lynch Ford said. "We're as shocked at this as anyone else. It makes no sense."
The prosecutor said authorities do not believe anyone else was involved and told residents by late afternoon that they could return to their homes.