The incident happened on the forecourt of a petrol station yesterday as passers-by and customers looked on in shock.
Witnesses told how three unmarked police cars pulled in and how officers res-trained two youths on bikes before calling for back-up.
Within minutes, more armed police and units arrived.
Police said it was part of a 48-hour operation aimed at catching dealers from other cities who were targeting the Portsmouth area.
They said they were targeting people suspected of supplying class A drugs.
Two youths were arrested during yesterday's incident at the Shell garage in Gold-smith Avenue, Southsea.
Among those who witnessed the arrests was a 39-year-old woman from Shearer Road, Buckland.
The woman, who asked not to be named, was on her way to her boyfriend's house when the drama unfolded.
She said: 'As we went past the garage we saw police officers on top of a short guy on the floor and there was another one being handcuffed. Other policemen were standing by pointing guns at them. It frightened me.'
In a separate part of the operation, a 20-year-old man was arrested yesterday in Hawthorn Crescent, Cosham, in connection with class A drug dealing.
No officers were available to discuss the operation.
n Two people were arrested yesterday in connection with the incident at the Shell petrol station in Goldsmith Avenue, Southsea.
A 19-year-old youth, from Portsmouth, was arrested on suspicion of possessing heroin with intent to supply.
A16-year-old youth, also from Portsmouth, was arrested on suspicion of being connected with the supply of class A drugs.