“I thought he was a taxi driver picking up a passenger but about 15 minutes later, we were evacuated by the police,” he said.
“There was a lot of panic. I left the money in the till and didn’t even get the chance to pull down the shutters – thank God we got out of there, I can’t believe we’re still alive.”
He said he had been told his business had been destroyed by the explosion but had not yet been able to see what damage was caused because the area remains cordoned off.
Conor Kelly, who lives in an apartment block near the police station, said it had been a terrifying experience.
“I was still awake and reading when I heard an enormous noise like thunder and saw debris flying past my window,” he said.
“There were no alarms or attempts to evacuate the building.”
He said the front of a fast food outlet had been “ripped to shreds” and other buildings had windows blown out.
In May, a mortar bomb was fired at the same police station. It struck a wall but failed to explode.
The attack comes just weeks after Derry was picked to be UK City of Culture in 2013.
SDLP MP Mark Durkan said the bombing was “a cowardly, dangerous and vulgar act”.
“Those responsible for this incident have achieved nothing and this campaign of violence will achieve nothing,” he said.
Sinn Fein assembly member Martina Anderson said: “I would call on those who support the groups involved in this kind of activity to explain to the people of Derry the rationale behind this futile campaign.
“The only thing they succeeded in doing last night was damaging and disrupting local businesses and possibly putting people out of work.”