The attack comes as Prime Minister Ahmet Davutoglu, whose government has waged a relentless campaign against Kurdish rebels since last summer, was due on Friday to make a rare visit to Diyarbakir.
The security source told AFP that the bomb exploded as a police vehicle drove past the city's main bus terminal. The wounded included eight police, three of whom were seriously hurt, and six civilians.
Turkish forces are engaged in an operation against Kurdish rebels from the outlawed Kurdistan Workers Party (PKK) in the region.
The new upsurge of violence between the security forces and Kurdish rebels erupted in July 2015, shattering a two-and-a-half year truce.
President Recep Tayyip Erdogan said this week that 355 members of the security forces had been killed in the fighting, along with 5,359 members of the PKK. It was not possible to confirm the toll on the rebel side.
Over 40,000 people have been killed since the PKK took up arms in 1984 demanding a homeland for Turkey's biggest minority. Since then, the group has pared back its demands to focus on cultural rights and a measure of autonomy.
Turkish air force planes have bombed PKK hideouts in mountains across the border in northern Iraq.
Ankara has vowed to smash the PKK, and authorities have imposed curfews in several towns in the region because of the fierce clashes.
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