Police said a device had been put in a bin in front of shops in the residential district of Bakirkoy.
Some reports said the device was a percussion grenade, a type of grenade that detonates on impact.
Istanbul's police chief Celalettin Cerrah said that two civilians in a critical condition had been taken to hospital for emergency surgery.
Two plainclothed policemen patrolling the area were also injured by flying glass when shop windows were blown out by the explosion.
There was no immediate claim of responsibility.
Earlier this year bombs across cities in Turkey have killed several and wounded dozens.
Militant groups including Kurdish separatists, Islamists and ultra-leftists have carried out attacks on civilians, security and military targets in Turkey in the past.