The 31-year-old man was 50 metres from the beach when the attack occurred in Adventure Bay, about 90 minutes south of Hobart, on Saturday morning.
Police said the diver's injuries were not life-threatening.
However, they have issued an alert for anyone planning to enter the water in the vicinity of the incident to be cautious.
Police launch Dauntless was patrolling the area in search of the broadnose sevengill shark thought responsible, on the eastern coast of Bruny Island.
There have been no further sightings, though.
"The man was diving with two other people at a depth of eight metres ... offshore from Coal Point, Adventure Bay when he was bitten," Inspector Darren Latham said.
''He was able to return to shore and was assisted by fellow divers who contacted emergency services about 9.10am."
The man was transported to Royal Hobart Hospital by Westpac Rescue Helicopter in a stable condition and treated for injuries to his lower forearm, Insp Latham said.
"While this appears to be an isolated incident, we are reminding anyone planning to swim or dive in the area to remain vigilant, follow local safety advice and be aware of their surroundings."Â
Anyone who sees a shark should report it to police or if the sighting presents an immediate threat, call triple zero.
A three-metre shark was spotted near a boat ramp at Bruny Island Cruises in Adventure Bay in March.
Tasmanian waters are home to several shark species, including great whites, sevengills and bronze whalers.
The sevengill, formerly known as the mud shark or cow shark, is identifiable due to its seven gill slits.
It is mainly benthic in nature, cruising along the sea floor and making an occasional foray to the surface.
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