The car smashed into a business on Canal Street, near Mercer Street, in Chinatown just after 5:30 p.m.
Firefighters scrambled to move people away from a green Subaru that was smoking after crashing into the store.
Police say a black Mercedes tried to make a U-turn and struck the other car, sending it careening onto the sidewalk.
Hundreds of people were on the always-busy sidewalk, but amazingly no one was struck.
"All of the sudden, you heard boom, heard three smashes," an eyewitness said. "We seen smoke coming and everything. People were screaming, and everybody started running across the street."
The driver of the Mercedes was arrested after investigators say she initially tried to leave the scene.
Despite the panic and the damage, there were no serious injuries.
WAKE UP WITH EYEWITNESS NEWS! Click here to download the WABC Eyewitness News Alarm Clock app from iTunes. or search WABC or 7online in the app store.
Get Eyewitness News Delivered