Sahan Panagoda, who lives nearby, happened to be taking a walk around the neighbourhood as the incident unfolded.
The 26-year-old, who filmed the disturbing attack, told news.com.au he was shocked that such a tragedy had occurred near his home.
"I have been living in this neighbourhood for 14 years and it's the last place you would expect something like this to happen," he said.
"It's a quiet neighbourhood, with mostly elderly retirees and everyone gets along, but now, looking back, maybe it's not as safe as I thought – anything can happen."
Panagoda said as he arrived at the scene, police were already there and a group of neighbours had also gathered.
He said initially he didn't realise the man had attacked anyone.
"I didn't know what was happening, but I saw a male sitting on the ground screaming – he seemed agitated and not in his right senses," he said.
Panagoda said he saw an officer draw a weapon and the suspect "lunged towards" police with an item that appeared to be a "bat or club" in his hand before the cops began firing.
"On the second or third shot he was hit – I could see blood on his stomach and he dropped down," he said.
"It wasn't until later when I heard, on the news, that a woman had been attacked – it's pretty crazy."
He said some of the older ladies in the area who witnessed the attack and shooting were left "traumatised" and "rattled".
"It was pretty scary – I was there by myself and there were other parties there with children, and elderly people," he said.
"Anything could have happened – he [the suspect] had no fear of the police. He had nothing to lose and seemed like he had no care in the world.
"The guy was screaming erratically and as the cops were coming up to him, I remember him waving his arms in the air."
Panagoda said it was a reminder to be careful in public.
"Especially in Melbourne with stage three lockdown, mental health is being pushed to new limits and you never know how some people will react," he said.
And he had a strong message for anyone who might criticise the officer's actions.
"They were trying to protect the lady's life at the end of the day and the way I saw it, their response was justified because the guy did lunge toward the officer," he said.
On Thursday evening, assistant commissioner Luke Cornelius praised the officers on the scene during an emotional media conference.
He said the female victim had been left with injuries so severe it had been too difficult to identify her.
Assistant Commissioner Cornelius said it had been a "tragic event" and that while the man was "known to police", he did not have a criminal record.
"We're very confident that this was not a random attack," he said.
"What I can also say is the [police] members involved were not physically injured but, of course, they're terribly shaken up. No member goes to work expecting to have to take the life of another person and that is a very difficult and, thankfully, a decision that does not happen too often.
"But when a police officer does make that decision, of course it has a terrible impact on that member and also, of course, generates significant concern for the wider community. Based on what I've been told about the events this afternoon, I understand that those members have acted appropriately, they've been decisive, they've taken action and they have acted in a way to keep the community safe and stop what was a frenzied attack from continuing."
