Anthony Cooper, 31, thought something was wrong when he smelled petrol in his diesel-driven cab after picking up a fare. Seconds later he heard on the radio of fire-bombs in the capital.
After dropping off the suspect he followed him, the court heard.
He alerted his head office, hailed a police car, jumped out of the taxi and grabbed the man.
The court was told that the man, Cafer Kovaycin, 30, had just petrol-bombed a Turkish bank in the City of London. Earlier that day, 4 November last year, colleagues of his had attacked four other Turkish buildings in London, it was alleged.
David Paget QC, for the prosecution, said that the Kurds were protesting about Turkish government death squads.
Hikmet Bozat, 33, Zervet Ozen, 19, and Mr Kovaycin variously plead not guilty to arson and conspiracy to commit arson. The trial continues today.