The scene inside the plane was recorded on video, which showed oxygen masks being deployed and a member of the cabin crew shouting, "Passengers, get down".
Others on the flight told Channel Nine that they had sent text messages to loved ones, fearing they were going to die.
"We were all pretty much saying goodbye to each other".
"Now, I get it", she added. "The masks dropped and everybody started panicking".
Tracy, who was travelling with son Jayden, said: "My son said he didn't want to get on another flight but I've assured him it can't happen twice in a row".
"I instantly grabbed my rosary beads and put them around my neck".
"The panic was escalated because of the behavior of staff who were screaming", Askew told the station. "We were more anxious because of how panicked they were", CNN reported. "We were more anxious because of how panicked they were", she said of the reaction of the cabin crew.
The panicked flight crew reportedly announced that there was an emergency. There was no real panic before that. "Then everyone panicked", said Mark Bailey.
Malcolm and Janet Canning said it wasn't just passengers that were scared but airline staff too as the flight plummeted from 32,000 feet to just 10,000.
Passengers on a June flight from Perth to Kuala Lumpur were told to "say a prayer" after an engine issue caused the flight to shake like a "washing machine".
"We commend our pilots for landing the aircraft safely and complying with standard operating procedure", AirAsia Group head of safety Capt. Ling Liong Tien said, according to NBC News. The airline further mentioned that the safety of its passengers is its priority and that they are sorry for the inconvenience caused.
The company said its engineers were already investigating the incident and were examining the aircraft. Such instructions are in line with routine flight crew practice when seeking to quickly secure passenger safety.
In an official statement, AirAsia apologised for the scare and blamed a "technical issue" but did not elaborate on the cause.