The toy knife can be found south of Turtledove Detention Camp very near one of the yellow signs. With your back to the sign, turn until you see a relatively long and impassible line made of bushes. It is hidden behind it, sitting on a wooden crate with a hockey mask.
Sometimes, the toy knife, the hockey mask and even the box disappear. To fix it, reload a save before you go to Point Lookout.
The toy knife is the most fragile weapon in the game.
It can only be repaired by merchants.
Despite the obvious fact from the name suggesting it to be a 'Toy Knife', The skin of which is used is exactly the same as it's vanilla counterpart, Knife (Fallout 3), the vanilla skin being made with a metallic blade makes this anything but a 'Toy'.