The incident occurred during the filming of a new production by UK director Alan Lyddiard, a well-known figure in Scottish theatre from his tenure as artistic director of Glasgow's TAG Theatre Company and associate director at Dundee Rep during the 1980s and 1990s.
As the unit director shouted "Action!", actor Kirk Abella began to speed away on a motorbike with a masked driver. The watchman feared he was going to escape, so grabbed him by the shirt and shot him, community police chief Alexis Relado, of central Cebu city's Parian district, said.
Many street killings in the Philippines, including those of political activists and journalists, have been perpetrated by gunmen on motorbikes.
Dozens of people were watching the filming of the British movie Going Somewhere late on Saturday, and thought the shot they heard was part of the scene.
Victor Sablada, who acted as the motorbike driver, said village watchman Eddie Cuizon introduced himself as a police officer. "I told him, 'Buddy, we are just shooting (a film],"' he said.
Mr Sablada said that, as he revved up the bike and started to move, Mr Cuizon jumped on the seat behind Mr Abella and shot him in the back.
Mr Abella slumped to the ground, his body hitting a lamp post. "He died in my arms," Mr Sablada said.
Mr Cuizon, 52, told police he had been woken up by a concerned citizen who reported the presence of armed men in his community. Volunteer watchmen are normally armed only with batons and are not supposed to carry firearms.
He told police he saw two masked men on a motorbike and approached them, but they sped away and he stumbled as he tried to stop them, injuring his knee. He fired at Mr Abella when the actor pulled out a gun, which turned out to be plastic.
Mr Abella, 32, died in hospital. Mr Cuizon immediately surrendered to the police after he realised what had happened.
Before the fatal shooting, Mr Cuizon went to the police station to tell officers about the reported presence of armed men, and was informed the gunmen may be part of the film production.
An officer accompanied him to the area, behind the police station, "to protect the film shooting … in case there really were armed men in the area," Mr Relado said.
Mr Cuizon was walking fast and reached the masked men ahead of the officer, who told him that the two were part of the film's cast.
"I don't know why he still accosted them," Mr Relado said. "Just as he reached the motorcycle, the director signalled, 'Action'.He thought they were going to escape that's why he grabbed (Mr Abella] by the shirt and shot him immediately."
Mr Lyddiard's film is about a fictional documentary-maker's travails in Cebu, where he plans to make a movie about the first circumnavigation of the world by Ferdinand Magellan, whose voyage to the Philippines led to its colonisation by Spain.