A commuter said he first thought the gun-wielding plainclothes officers who ran on to a Tube train might be "a group of lads who were just having a laugh".
Ralph Livock said he had no idea that it was anything more serious until one of the armed men fired at Mr de Menezes at point blank range.
Mr Livock and his girlfriend Rachel Wilson were sitting in a Tube carriage opposite the 27-year-old Brazilian on the morning of 22 July 2005, the inquest heard.
The passenger recalled that their train was held up for longer than usual at Stockwell station in south London - and then four casually-dressed men armed with guns got on board.
Nicholas Hilliard QC, counsel to the inquest, asked him: "Did you have any idea who they were?"
Mr Livock said: "Absolutely not."
He went on: "One of my initial thoughts was it was all a game and they were a group of lads who were just having a laugh - a very bad taste laugh but just having a game on the Tube, because they were just dressed in jeans and t-shirts but with firearms."
Mr Hilliard went on to ask: "Had you heard anything said about police?"
Mr Livock replied: "No, certainly not.
"And I remember that specifically because one of the conversations that Rachel and I had afterwards was that we had no idea whether these were police, whether they were terrorists, whether they were somebody else. We just had no idea."
He added: "The thing that made me realise it wasn't a group of lads playing around or something else happening was when the first shot was fired."
Mr de Menezes was shot seven times in the head at point-blank range after being mistaken for failed suicide bomber Hussain Osman.
That morning, Mr Livock got on to a northbound Northern Line train at Clapham North station with Ms Wilson, the inquest heard.
While they were waiting at Stockwell station, he heard shouts from outside the train saying something like, "he's here".
A few seconds later a man holding a pistol entered their carriage and levelled it at Mr de Menezes, who was sitting opposite Ms Wilson, the hearing was told.
Mr Hilliard asked the witness: "Did you hear him saying anything to Mr de Menezes?"
Mr Livock said: "Absolutely not."
Mr Hilliard continued: "Did you hear Mr de Menezes say anything to him?"
The passenger replied: "No, absolutely not at all.
"If anything, Mr de Menezes looked as if he was - I hesitate to say confused, confused isn't really the right adjective.
"He looked as if he was expecting somebody to say something but he didn't look frightened.
"He looked as if he was waiting for somebody to tell him what was going on."
None of the passengers in the Tube train were called to give evidence at the Metropolitan Police's Health and Safety trial over the shooting last year.
This is the first time they have spoken in public about what they saw.
Firearms officers involved in the operation have told the inquest they shouted "armed police" at Mr de Menezes before shooting him.
But giving evidence today, Ms Wilson also insisted she did not hear this and had no idea who the men who killed the Brazilian were.
Mr Hilliard asked her: "Was anything said at any time during the incident to give you a clue as to who they were?"
She replied: "No, and I know this because similar to Ralph's statement, first I thought they were messing around.
"Then I thought they were terrorists and it was only when I left the carriage and somebody moved me gently out of the way that I figured they must be good guys.
"Apart from that, I just didn't know who they were."
Mr Hilliard went on: "Specifically, did you ever hear anybody shout 'armed police'?"
Ms Wilson answered: "If I had heard that, I would have thought they were police, so no."
She said it was only after the shooting, when she saw she had blood on her hands, that she realised how serious the incident was.
