Electricity was turned off to surrounding houses, as rescue workers feared a spark might ignite the spilt fuel around the bus.
One of the first people on the scene was Mitchell Lindsay, who works at the nearby Green Garage, about 100 metres from the crash site in Browning Street.
Mr Lindsay said that the bus came down Bangalow Road and turned left at the roundabout opposite the store, but instead of straightening up it then continued to veer left.
He said the scene was like something out of a movie.
The bus hit a tree which then crashed to the ground.
Stephen Baldwin, who was eating his lunch at the Green Garage, said that when he arrived on the scene, the driver, believed to be in his mid-40s, was slumped over the wheel.
There were about 10 passengers on the bus.
The injured passengers and the driver were taken to Byron Bay Hospital.
The name of the driver, who is in a stable condition, has not been released.
Police are investigating.
Traffic was diverted around the accident site for several hours.
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