The Fire Service says a blaze at a block of flats on the Letterkenny Road in the city on Friday night was started deliberately.
The fire was started in the lobby of the flats and fire crews received a call at 0100 BST on Saturday. A man and a woman had to be rescued from inside the building.
Mark Darryl from the Fire Service said the occupants were lucky to have escaped serious injury.
“The female occupant when she had opened the door had taken in an awful lot of smoke and was suffering from smoke inhalation,” he said.
“She was taken to Altnagelvin Hospital by ambulance in a very distressed state.
“The male occupant of the adjacent flat was treated at the scene.
“He was fine, but I think the woman had a very lucky escape.”
Sinn Fein councillor Patricia Logue said “This must have been a very frightening experience for the residents.
“Particularly as this fire took place in the early hours of the morning. I would appeal for anyone with information about this fire to contact the police.”