It was triggered at about 12.30pm when masked men ordered a lorry driver to take a suspect object to Strand Road police station.
The vehicle was stopped in the Galliagh area while the driver was making a delivery to Ederowen Park.
Two men loaded a wheelie bin on board and told the driver it contained a bomb.
They ordered him to bring it to the PSNI station.
But the driver abandoned the lorry at Buncrana Road, which was partially closed due to construction work, and a nearby construction crew raised the alarm.
Staff at St Columb's College were advised to leave. People based at Springtown Industrial Estate were also moved out.
Following an examination by army bomb experts, the object was declared a hoax.
Chief Inspector Tony Callaghan said: "This security alert caused a great deal of inconvenience to the people of Derry, including those who work in businesses close to the scene and also those who travel along Buncrana Road and Springtown Road, both of which are major arterial routes.
"However we must all remember that despite the major inconvenience caused, this was undoubtedly a frightening experience for the lorry driver.
"Today a man was going about his normal day-to-day work when he was confronted by masked men and ordered to drive with what he was told was a bomb to the police station," the Foyle Area Commander continued.
"We have a range of policing operations in place and we will always seek to prevent these types of incidents."
It is the people of the city who bear the brunt of the inconvenience and any potential destruction, so we would appeal for everyone's help in showing the perpetrators that this is not what anyone wants for the city. You can do this by providing information that can help to bring these people to justice.
Chief Inspector Tony Callaghan
"Information can be given to us in a variety of ways; by calling the detectives at Strand Road on the 101 number; by calling Crimestoppers anonymously on 0800 555 111; or by liaising through a community or civic representative.
"It is important that we get this information so that the people of Derry can continue to move forward and enjoy the enormous progress that this city has seen in recent years."
Sinn Féin MLA Raymond McCartney has condemned those responsible.
"This incident has brought widespread disruption to this area of the city and must be condemned.
"It was a very frightening experience for the driver of this vehicle, who was confronted by masked men and ordered to drive what he believed to be a bomb through the city," he continued.
"Those behind this incident showed no regard for the driver of the vehicle or the people of Derry.
"They are offering nothing to society and need to stop these actions immediately."
Alliance Policing Board member, Chris Lyttle MLA, said: "Those responsible for this attempted bomb attack have no regards for the lives of other people. I would condemn this attack in the strongest possible manner.
"There is no support for the actions of these individuals. The vast majority of the people of Northern Ireland have rejected violence and want to help build a shared and safer future for all.
"Those behind this attack are very dangerous individuals who must be urgently apprehended by the Police. I would urge anybody with any information about this incident to contact the PSNI," he concluded.
The Ulster Unionist Party's Foyle chairman, Ronnie McKeegan, said: "Once again masked men have set out to impose themselves on our city and in the process have created disruption to the daily lives of many innocent people, including businesses which have been forced to close and staff at St Columb's College who were preparing for tomorrow's GCSE results announcement.
"I understand the intended target was Strand Road Police Station, so the finger of suspicion must fall on those republicans wedded to violence who still have not got the message that their day is over."
SDLP Foyle MLA Colum Eastwood described those responsible as "cowards."
"Derry will not be dragged back to the barbarity of the past by mindless thugs devoted to terror. Our city has made tremendous strides towards a bright future and such acts of attempted destruction will be viewed with utter revulsion by all right thinking people."