The robbery took place in the hotel room of an American woman employee of Swiss bijoutier Chopard as she was out for the evening, police said.
A strongbox containing jewels was ripped out of the wardrobe and carried off, they said.
The public prosecutor for the Cannes region, Jean-Michel Cailliau, said the loss was estimated at $1.4 million dollars (one million euro).
But Chopard downplayed the reported value of the jewels and contradicted police reports that they were intended to be worn by stars at Cannes.
The heist occurred before 5:00 am (0300 GMT) at the Novotel hotel, which is located about 15 minutes from the festival venue, police said.
The Chopard employee was due to be interviewed by police later on Friday and investigators were trawling through footage from the city's security cameras to hunt for clues, they said.
Chopard is one of the official sponsors of the festival, and one of its stores, complete with its own red carpet, lies on the palm-fringed beachfront, just opposite the venue.
The jeweller redesigned the Palme d'Or trophy and each year lends out jewellery to stars for their walk up the red-carpeted steps at the Palais des Festivals.
The photo-calls are hugely valuable to makers of gowns and jewellery, providing media exposure around the world.
Actresses at this year's festival who have donned Chopard jewellery include Julianne Moore, Lana Del Rey, Cindy Crawford, China's Fan Bingbing and Spain's Blanca Suarez.
Chopard, though, issued a three-paragraph statement saying that it could not give many details because the incident was under investigation.
"We can only let you know that the value of the pieces stolen is far lower than the figures announced in the media," it said.
"The jewels stolen are not part of the collection of jewels that are worn by actresses during the Cannes Film Festival."
An official linked to the festival said the top award, the Golden Palm, was safe.
The Palme d'Or features 118 grammes (four ounces) of yellow gold, with a value of more than 20,000 euros ($26,000), set in a base of rock crystal.
The history of the trophy dates back to 1955 - by coincidence, the year that Alfred Hitchcock made "To Catch A Thief," about a gentleman robber and a jewel heist on the French Riviera.
And in another twist, the robbery took place shortly after the world premiere of "The Bling Ring," a true-to-life tale of a group of wealthy teenagers who burgle the homes of Hollywood celebrities.
Thefts do occur during the annual 12-day bash, but police said they had no knowledge of any loss as big as Friday's heist.
The Cannes Film Festival is ranked as the world's most prestigious movie showcase.
Famous for a backdrop of an azure-blue sea, luxury yachts and champagne parties, it lures thousands of actors, directors, producers and movie buyers.
As a result, security in the streets and hotels is very high.
Late Friday there was a scare on the Croisette seafront when a man fired twice in the air as he approached a temporary TV studio set up for special coverage of the film festival, police and witnesses said.
There was a brief moment of panic in the crowd around the seafront studio, but no-one was hurt as the gun was loaded with blanks and the suspected assailant, who also had a dummy grenade and a switchblade knife, was arrested.
Marcel Authier, in charge of public security in the local Alpes-Maritimes department, told AFP that the arrested individual was a 42-year-old man who was "someone mentally unstable".
Last year in Cannes, thieves made off with four watches worth 400,000 euros ($513,000) belonging to football stars Souleymane Diawara and Mamadou Niang who were in Cannes for the festival.
Three months before this year's festival, thieves made off with 150 watches, worth around a million euros ($1.3 million), from a luxury store on Cannes' seafront.