The auto shop was the last building standing on an area of land the city purchased or acquired through eminent domain to clear the way for DaimlerChrysler AG's Jeep assembly plant.
The city and automaker want to acquire the auto shop's corner lot, which is a few hundred yards from the factory, which opened in 2001.
The automaker said the land may be used for a new parts plant.
Herman Blankenship, the shop's owner, said city workers should have waited until the court decided what to do.
The Supreme Court twice refused to delay the demolition.
The Blankenships are challenging the city's use of eminent domain, which gives governments the authority to buy and take private property for public projects such as highways.
A city law official said there was no injunction preventing workers from moving forward with the demolition Tuesday.
"We're under no obligation to wait for any further decision," said Adam Loukx, a senior attorney in the law department.
A Lucas County jury two years ago determined the property was worth $104,000. The Blankenships refused the city's offer to pay that amount plus moving expenses. They said rebuilding their business at a lot they own across the street would cost at least $500,000.
The city's agreement to provide land for the Jeep plant was part of an incentive package worth about $300 million to keep the automaker in Toledo.
The payoff, the city has said, was the 4,000 jobs that stayed at Jeep and spinoff jobs created by parts suppliers and other companies.
Detroit Free Press: www.freep.com