She said road signs had also been picked up and thrown.
She said it was mainly verbal fighting until one man pulled out a gun and "started waving it around".
She said at that point everyone watching went inside, fearing a stray bullet.
The woman said she was "just pleased no one was hurt".
Armed police were now talking to witnesses and she said she was "shaky as hell, everyone is".
Another woman, who spoke on the condition of anonymity, said she saw a vehicle try to run over a group of people, and one person try hit those in the car with a pole.
She ran to the store door this morning to look at what was happening outside after someone said "call the cops".
She said she saw people pulling out road work poles to use as weapons.
She said there were "a lot of nervous people" in the city following the incident, and there was still a police presence.
Taupō Area Commander Inspector Phil Edwards said police were investigating a disorder incident on Te Heuheu St and there would be a continued police presence in the area.
"A group of people, reportedly gang members, were seen fighting with weapons. A firearm was seen but at this stage, police do not believe it was discharged," he said.
He said the group left the scene before police arrived but officers were following lines of inquiry.
Police would like to hear from anyone who may have a video of the incident. This can be taken to Taupō Police Station, or call 105 and quote event number P051131577.