The short stands out from Lasseter's other early short films at Pixar in its reliance on pure comedy to drive the story. It was inspired by Tom and Jerry, Looney Tunes, and the work of animators Chuck Jones and Tex Avery. Lasseter collected snow globes and also enjoyed souvenirs from distant places and those elements made their way into the short as well. Singer Bobby McFerrin improvised the a cappella vocal jazz soundtrack to the film while watching a rough cut which was eventually left unchanged in its final edition.
On a bookshelf filled with summer vacation-themed souvenirs, a snowman named Knick (who is the cousin of Frosty the Snowman, according to the audio commentary), who resides in a Nome, Alaska snow globe, wants to reach a "Sunny Miami" knick knack that shows a girl lounging in a blue bikini. Knick tries several unsuccessful methods to exit the globe: ramming it with the igloo backdrop, using a hammer and his carrot nose to chisel through, attacking it with a jackhammer, using a cutting torch and detonating TNT explosives. As the globe eventually falls over the shelf's edge, Knick notices an emergency exit in the base and frees himself just before he and the globe fall into a fishbowl. Here Knick sees a pretty mermaid souvenir from "Sunny Atlantis" and runs toward her, but before he can reach her, the globe settles to the bottom and traps him for the second time, leaving Knick frustrated.
In 1988, Pixar's third short film, Tin Toy, won the Academy Award for Best Animated Short Film, the first computer-animated film to claim the award. It was also the first win for the hardware company, which was still struggling to sell its main product: the Pixar Image Computer. The key animator and director behind Tin Toy, John Lasseter, had once worked at Disney several years prior but was fired by unknowingly stepping on his superiors' toes with his support for computer animation. Now, Disney took notice of the Oscar win for Tin Toy and began a campaign to win Lasseter back.
Lasseter turned the studio's offer for a directorial position down, remarking to Pixar co-founder Ed Catmull, "I can go to Disney and be a director, or I can stay here and make history." Jeffrey Katzenberg, the head of Walt Disney Studios, had a reputation for being difficult and controlling. In contrast, Lasseter received complete creative freedom at Pixar's small animation division and was highly respected by his colleagues. In addition to capturing Disney's interest, Pixar owner Steve Jobs invigorated his interest in the animation group, and he approved production of another short.
After the headaches of animating Billy the baby in Tin Toy, Lasseter backed away from depicting human characters. The team all agreed to do something simpler that would not "drive us all crazy," according to producer Ralph Guggeinheim. When watching Who Framed Roger Rabbit during the production of Tin Toy, Lasseter became inspired to create a Chuck Jones-type of cartoon. Rather than to challenge the limitations of the computer as they had done in the previous shorts, the animators wanted to make a short based on geometric shapes instead, which was a strength of the computer. In a discussion with the group, Lasseter brought up famed Warner Bros. and MGM director Tex Avery, noting that his cartoons were wild and exuberant, yet not necessarily very complex. Lasseter collected snow globes and also enjoyed souvenirs from distant places; from those elements, Knick Knack—the only pure comedy among Lasseter's early short films at Pixar—began to fall into place.
The rest of the team were also fans of Tom and Jerry cartoons and the work of Chuck Jones, and found the idea of cartoonish violence appealing. Animator Flip Phillips and production coordinator Deirdre Warin simultaneously hit on the idea of the snow globe falling into a fishbowl. Craig Good came up with the idea of an "iris out," a shrinking circle at the close, as a reference to Looney Tunes. A skeleton on the shelf in the short was a 3D model from an Ohio State University skeleton data set called George, though the Pixar team stretched George's arms for comic effect. Also distorted were the two female characters—the bikini-attired woman and a mermaid—whose breasts were ultra-exaggerated thanks to a technical director who was a pinup enthusiast.
The singer Bobby McFerrin created the musical soundtrack, an a cappella vocal jazz track which he improvised while watching a rough cut of the film. As the rough cut ended, the placeholder credits read blah-blah-blah-blah, so he sang those words and it remained in the film's score. McFerrin did the score for free out of a belief that the film was cool to be involved with. Gary Rydstrom of Lucasfilm created the sound effects for the short.
Knick Knack premiered at the 1989 SIGGRAPH in Boston. It was one of the last pieces of animation that Lasseter would animate personally during Pixar's years as an independent company. In 1990, it won the Best Short Film award at the Seattle International Film Festival. When Lasseter presented it at the London Film Festival in 1991, The Independent of London called it "a four-minute masterpiece" and The Guardian hailed Lasseter as "probably the closest thing to God that has ever graced the electronic images community." In 2001, Terry Gilliam selected it as one of the ten best animated films of all time. After Knick Knack, Pixar took a break from animated shorts and re-focused on animating television commercials to build income and hire new animators.
The film has been released in two versions, and each of these have been shown in both 3-D and 2-D. The original version was shown in 3D in 1989 at the SIGGRAPH program, and was released on the VHS and Laserdisc, Tiny Toy Stories, and also on the Toy Story deluxe CAV Laserdisc edition, both of which are now out of print. The film was completely altered for release preceding Finding Nemo (2003). In this version, the woman on the "Miami" knick knack and the mermaid in the fish bowl now have much smaller breasts and the mermaid is now wearing a seashell bra rather than just starfish pasties. Lasseter defended the changes by saying, "It wasn’t big bad Disney coming in and insisting we do this … it was our own choice. It was just crossing the line for me personally as a father. So I made the decision to reduce [these characters’] breast size." This new version is preceded with the message "In 1989, six years before Toy Story, Pixar Animation Studios made this short film." This version is available on the Finding Nemo DVD and Blu-ray, the Pixar Short Films Collection – Volume 1 DVD and Blu-ray, and through the iTunes Store. A 3-D version of the new edition played to the public as a short attached to the 2006 Disney Digital 3-D release of The Nightmare Before Christmas.