Police said later that "all the evidence points to" a man with mental health issues lashing out, but they would not rule out any potential motives as the investigation was still at an early stage. Given the information they had, however, they said the incident was not being classed as terrorism and that the suspect was believed to have acted alone.
Witnesses say the man, wielding a long knife, tried to stab multiple people near a busy intersection. New South Wales state police said in a statement that the man was caught and the woman was in stable condition.
Not far away, the body of a woman believed to have been an acquaintance of the detained suspect was found in a home.
A witness told reporters the man was screaming comments about religion before yelling to police that he wanted to be shot. Police said he used the Arabic phrase "Allahu akbar." However, police later said the man also had in his possession a thumbnail USB drive containing information related to white supremacy.
Asked by a reporter whether the conflicting religious references suggested to him a mental health problem at the root of the crime, New South Wales Police Commissioner Michael Fuller said, "certainly all the evidence points to that" at this stage of the investigation.
The incident brought the central business district of Australia's biggest city to an early afternoon standstill, the Reuters news service reports.
Australian Prime Minister Scott Morrison praised members of the public who helped subdue the suspect during the attack.
Reuters quotes Police Superintendent Gavin Wood as telling reporters in Sydney the woman was stabbed in the back but her wounds weren't life-threatening and that the attack on her seemed to be unprovoked.
Comment: More footage and reporting from the incident:
RT provides more detail on the woman's body that was found and how it's likely to be linked to the two other women that were attack that day: