Classic cars, a burnt out van and various props could be seen at Victoria Street, by its junctions with Bell Street and Skinner Street on Sunday and it looks like filming was continuing this morning.
A crew member at the set confirmed to the Express & Star filming was under way for Mr Knight's new project called This Town.
Earlier this year, the BBC commissioned the six-part drama about the UK’s ska and two-tone music scene.
'This Town’ tells the story of an extended family and four young people who are drawn into the world of ska and two-tone music, which exploded from the grassroots of Coventry and Birmingham in the late ‘70s and early ‘80s, uniting black, white and Asian youths.
Mr Knight, who grew up in Walsall, previously used the region for the filming of Peaky Blinders – especially at the Black Country Living Museum in Dudley.
Chris Close, who was passing, said: "(I) was just walking in town and was curious about the film unit vans in Market Square, then saw the burnt out car and twigged that it was probably a film set. The van on Victoria Street confirmed my suspicious."
"Someone told me it was Peaky Blinders but I've heard it's the 80s riots since," one person said on social media. Another added: "It's definitely not Peaky Blinders – rolled up jeans, yellow bomber jacket."
And Cal Mark Fellows, who took footage of the set, said he believed it was linked to the Handsworth riots.
Tunwalls Cafe, established in 1597, is right in the centre of the action, and had regular visits from crew members and extras.
Bronwyn, a waitress at the cafe, said: "Everyone thinks that the props and burnt cars were caused by the builders, which is quite funny. Most people think there has been an accident and that there was a real fire happening.
"We got a letter saying they were filming but we don't know what it is yet.
"It was weird coming to work because I get off the bus up the road and didn't know whether to walk through them or not, I might have had my five seconds of fame!
"The crew have been coming in for coffee and lunch all week, so that has been a good thing.
"This is the second oldest building in town, after St Peter's. Maybe it's a bit too old for what they're filming."
Ben Irving, acting director of BBC Drama, said: “Steven has taken his knowledge of this time and place and used it to weave a brilliantly original and characterful drama, set against the musical backdrop of ska and two tone. We are thrilled to be able to bring this unique piece to viewers on the BBC.”