Eric Nerhus, 41, was flown to a hospital with serious injuries to his head, body and left arm after the attack Tuesday off Cape Howe, about 250 miles south of Sydney.
The shark grabbed Nerhus by the head, crushing his face mask and breaking his nose, said Dennis Luobikis, a fellow diver who witnessed the attack.
"He was actually bitten by the head down — the shark swallowed his head," Luobikis said.
The shark, believed to be a great white, came back for a second bite, clenching its jaws around Nerhus' torso and leaving deep lacerations in his side, said Luobikis.
Nerhus wrestled free of the shark's jaws, and later told rescue workers he had poked the shark in the eye, spokeswoman Debbie Lowry of the Snowy Hydro Rescue Helicopter service told local media.
"He was diving so we have to fly low to the ground, and there are mountains on the way to Canberra," Lowry said of the rescue, adding that when you dive, "you have got to a minimum of two hours adjusting ... it's decompression. The oxygen in your lungs need time to readjust or you get the bends."
Nerhus was pulled from the water by his 25-year-old son and rushed to a hospital, suffering blood loss and shock.
"Eric is a tough boy. He's super fit," said Luobikis. "But I would say that would test anyone's resolve, being a fish lunch."
Shark attacks are relatively common in Australian waters, home to some of the world's deadliest sea life. Scientists say there are an average of 15 shark attacks a year in Australia — one of the highest rates in the world — and just over 1 per year are fatal.