Donegaldaily.com understands both men were approached in the street by members of the drugs squad and searched.
Significant amounts of cannabis was found on the two suspects.
One of the men is 42 and from Dublin while the second man, who is 46, is from Letterkenny.
Both men were taken to Letterkenny Garda station to be interviewed about the finds.
In a follow-up operation two private residences in the town were searched as part of an overall clampdown on the misuse of drugs.
The find is the latest in a number of recent drug hauls in the town in recent weeks.
Last month two men were arrested close to the Dry Arch Roundabout and more than €2,000 worth of cannabis was discovered.