John Agnesini, 26, a magazine designer, said he had already taken a few bites from the sandwich in late June when he spotted the knife jutting out from the bread's crust. The lawsuit, filed in Manhattan state court, seeks $1 million.
"If I didn't look at it, I don't know what would have happened," said Agnesini. "That's the last thing you think about a sandwich you eat all the time."
A colleague telephoned the chain to complain, but Subway never apologized, he said.
Subway spokesman Kevin Kane said in a statement the company was investigating.
"At Subway restaurants, we take food safety and customer comments very seriously. We are aware of the complaint made and are investigating the facts alleged. As a pending legal matter, we cannot discuss this matter further," said Kane.
The case was filed on public health grounds, but Agnesini's lawyer, Yetta Kurland, also said she was looking into whether the June incident may have been intentional or malicious.
(Reporting by Edith Honan, editing by Michelle Nichols and Cynthia Osterman)