The attack occurred in Patthavikorn market in Bangkok's Bung Kum district.
Bung Kum police said they were informed of the attack and rushed to the market, but arrived too late to avert the tragedy.
At the scene, they found 36-year-old trader Anongnit Sae Dan lying face down in a pool of blood. Her head was hacked open and pieces of her skull were found as far as five metres away.
Thantida Khuha, one of the traders who witnessed the murder, told police that the slain woman was eating dinner with her and three other friends near their stalls.
Anongnit's ex-husband Yutthapong Boonsong walked in carrying a bundle of newspapers, she said.
As he approached their table, the man suddenly took out the axe and immediately attacked his former wife, hacking away at her several times.
The four women begged him to stop, but the man would not and struck at least 10 more times with the axe until he was certain she was dead. He then fled on a motorbike, Ms Thantida said.
Pol Lt Col Pirom Chantrapirom, a deputy superintendent at Bung Kum police station, said the suspect was once a trader in the same market. The couple had separated over a year ago, but the man had since stalked Anongnit.
Witnesses told police that Mr Yutthapong had frequently beaten his wife in the past and she considered pressing charges against him, but had not done so.
The police said they are tracking down the suspect.