He said he saw police with guns drawn chasing the man.
NSW Police are asking the public to avoid the area, after a man with a machete was arrested while reportedly trying to stab members of the public.
A woman's body has been found in a building near the vicinity of a stabbing rampage in Sydney's CBD.
Her body was found in a unit block above Clarence St Cyclery, which was forced to close after police set up a crime scene in front and behind the shop.
One other woman was injured in the earlier incident.
The pair chased the man and then managed to get a grip on him with the help of a third person.
"They were fearless and I can only use that word seriously - they were significantly courageous people", he said.
"To approach a person... with clear evidence of a stabbing previously, these people are heroes", police spokesman superintendent Gavin Wood said.
Paul O'Shaughnessy and his brother Luke, from Manchester, heard a disturbance outside their office on King Street in the Sydney CBD.More news: Janhvi Kapoor remembers Sridevi on her birth anniversary
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He said the man had been arrested and "the threat has been negated".
Video posted on Twitter shows the man yelled at police: "F***ing shoot me in the f***ing head" before he was wrestled to the ground by bystanders and a milk crate was placed over his head.
Another woman, who is now in hospital, was stabbed in the back at a hotel about 2pm.
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Jack Huddo, who purportedly witnessed the incident, wrote on Twitter: "A random dude just started stabbing people in the city right outside where we were having lunch".
"He ran all the way back to near my work where a lot of others had cornered him for the police!"
"Everyone was just running away from where the fire brigade truck was and the next thing I saw this guy jumping over the auto".
The attacker was taken by police to a local hospital.
Police hailed the bravery of onlookers who stepped in and pinned the man down with chairs and a plastic crate. Police at the scene have confirmed there have been no fatal injuries.
"I've even seen three undercover cop cars pull up and blokes running from them down the street", he said. Traffic is extremely heavy, so all motorists should avoid the area.