Senior Sergeant Anthony Bond, of Dunedin, said officers were called to reports of a man walking down Great King St carrying a switchblade about 6pm on Tuesday.
The 27-year-old man was arrested and charged with possession of a knife and disorderly behaviour, Snr Sgt Bond said.
A witness to the arrest said he saw one police officer present a Taser and the other had a police dog on a leash.
The man had been at the ATM, did not seem particularly agitated and surrendered quickly, the witness said.