Although officials stressed today the exercise has been planned for six months and is not related to last week's attack in Tunisia in which 38 tourists died, many of whom were British.
Nicknamed Operation Strong Tower, the exercise will involve members of 14 organisations and agencies, testing their response to terrorists armed with firearms, the Metropolitan Police said today.
It's been reported the exercise will take elements of two incidents from last year: the attack on the offices of Charlie Hebdo in Paris, and the siege of a cafe in Sydney.
Most of the action today will take place around the disused Aldwych Tube station in Surrey Street, in central London.
"Testing and exercising is a really important way to ensure that our plans to respond to a major incident or terrorist attack are as good as they can be," said deputy assistant commissioner Maxine de Brunner, who will direct the exercise.
"Sadly London is no stranger to terrorism. Given the changing nature of the very real terrorism threat and events around the world we need to constantly adapt our plans and prepare for new emerging threats."