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The shoot-out took place late on Friday after suspected members of the Movement of Democratic Forces of Casamance (MFDC), which has led a low-level insurgency in the region since the 1980s, robbed a bank in the town of Kafoutine.
"There are four dead including a Frenchman," said the source. He said the French victim had lived in Casamance and was married to a Senegalese woman.
The others killed in the attack were Senegalese, the source said. The suspected rebels made off with some four million CFA francs ($8,400) in cash from the bank.
The MFDC has fought a long-running bush war for independence in the mostly-Christian southern region of predominantly Muslim Senegal.
Its revolt has fed on resentment among the southern Diola people against the Wolof, Senegal's dominant ethnic group, who have traditionally wielded more economic and political clout in the capital Dakar.