Chief Inspector Jim Tyner, who is in charge of the Wolds Division, was passing the cash machine at Lloyd Bank in High Street.
It is understood Ch Insp Tyner tried, but failed, to apprehend the offenders.
He told the News: “At 1:15pm on Wednesday afternoon, I became aware of two men having tampered with an ATM cashpoint at Lloyds.
“It would appear that a device had been fitted so that when users attempt to withdraw cash they are prevented from retrieving it.
“The offenders would the return to the cashpoint, remove their device and take the cash.
“Two men were challenged but unfortunately made off from me and fled the scene.
“This is a reminder for people to be vigilant when withdrawing cash from cashpoints.
If anyone witnessed the incident and can provide any further information, please contact Lincolnshire Police on 101, quoting incident 192 of July 27.
It is not clear whether any money was stolen.
Unconfirmed reports suggest another ATM at Barclays in the High Street was tampered with.
A Lloyds Banks spokesman said: “We can confirm that an off-duty police officer attended our branch in Horncastle yesterday (Wednesday) following reports of suspicious activity at one of our cashpoints.
“As our investigation is ongoing, we are unable to provide any further details at this time.”
The spokesman reassured customers that incidents at cash points were ‘rare’, and ‘robust measures’ were in place to ensure customers were safe. He said anyone who spotted anything suspicious should contact their branch or a customer services team member.
The cash point was still out-of-service earlier today.
• Police stress their enquiries are still continuing.