The drama unfolded this afternoon after the man in a grey hoodie was seen wielding a knife near Wynyard. Police were called at 2pm to King and Clarence Streets in the CBD.
Video footage from 7News shows the man being apprehended by hero bystanders who'd pinned him to the floor using a milk crate.
A statement from NSW Police said they located a woman inside a hotel, who had a stab wound. She has been taken to hospital in a stable condition.
Another woman has been found dead near the scene, reportedly with her throat slashed. Police are investigating whether the incidents are linked.
An Uber driver who was in the are told 2GB: 'I was next to a fire truck in York Street and he jumped on the bonnet of my car. He crashed across the bonnet and had a knife in his hand.
'There was blood on his shirt. People had their phones out and there was police.'
A woman at the scene told Daily Mail Australia: 'A crazy man is running around Wynyard with a knife stabbing people.
'My work colleague's boyfriend was standing right next to the guy who was stabbed. Has the world gone mad?'
Motorists are being urged to avoid King Street.
'All lanes of King Street are closed from Clarence Street to York Street. Traffic in the area is heavy, and motorists are advised to use an alternative route,' said a spokesperson for the Transport Management Centre.
'Buses are also diverting away from King Street and are using Clarence Street, Market Street, Kent Street and Erskine Street then returning to Clarence Street.
'Emergency services are on site, and traffic crews are responding.'
