Military sources said that elements of a rebel force seeking to topple Idriss Deby Itno, the Chadian president, entered the capital early on Thursday, as fierce fighting continued in the suburbs.
Residents and diplomats confirmed that the rebels were in the city. The sound of artillery and machinegun fire could be heard coming from the northeast sector where the national parliament is.
Earlier on Thursday, residents in the eastern neighbourhoods of N'Djamena awoke to heavy gunfire before dawn, sending panic through the city the day after reports that rebels were marching on the capital.
Thursday's offensive followed three days of attacks in the countryside by rebels.
French troops based in Chad took up positions around government office buildings late on Wednesday, in anticipation of a rebel attack.
France, which supports Deby's government, sent 150 troops to add to its contingent of about 1,200 already in Chad to protect about 1,500 French citizens there.
The soldiers are being dispatched from the central African country of Gabon, the French Defence Ministry said in a statement in Paris.
The government describes rebel groups in Chad as mercenaries and militia working on behalf of the government of neighbouring Sudan, an accusation Sudan denies.
Unrest in Chad has the potential
to undermine the whole region
Scores of defectors from the Chadian army have joined rebel groups in their effort to overthrow Deby who seized power in a 1990 coup, and has seen his authority undermined by violence in neighbouring Sudan and an apparent struggle for control of newly discovered oil reserves.
The troubles in Chad have revived fears that the Darfur conflict in neighbouring Sudan has the potential to undermine the region where Sudan, Chad and the Central African Republic meet.
Since October, the rebels have been skirmishing with government forces along the border, which is more than 1,000km east of N'djamena.