"The bar was closing when out of nowhere David showed up all by himself and seemed to be way off the wagon," an eyewitness told RadarOnline.com.
"There were only about eight or 10 people left in the bar and he bought a round of shots for everyone before taking the stage."
During Arquette's impromptu comedy sketch, the Scream actor reveals an embarrassing masturbation session leaving the audience speechless.
"My d*ck's raw, and I'm jerking off with soap -- by the way, never jerk off with soap. I learned this when I was like 8, 9-years-old," Arquette tells the crowd.
"That sh*t started scaling back, like a snake, like a f**king rattler. That sh*t started peeling. I didn't know what was happening to my f**king thing. And then I ran out of Jergens, and it didn't hurt me no more.
"But before that, I literally jerked off for about four of five months, months with f**king shampoo or...I went through it, I went through the pain."
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The eyewitness tells RadarOnline.com that while it wasn't caught on tape, Arquette then began to disrobe on stage and teased about exposing his genitals.
"Then he made gestures like he was going to pull out his d*ck and thank god he didn't, but the entire thing was very strange and weird!"
"I don't know if he was just drunk or what he was on, but it was sort of sad to see this famous actor making such an idiot of himself," the source added.