I can't find the small knife even though I've been looking in detail throughout the island. Any suggestions?

Well, the knife could be hidden. In my game, It was hidden behind the bath, and was really hard to spot, so maybe you should just look on the outskirts of the village and check every little detail.

Another place to look is by the cliff on the right side of the orchard area, on the ground beneath the pink diamond shape jewel. Also close to the cactus plant, near the lab.

In every game it comes in a random area, you'll have to look around carefully

yay for karuna

Your welcome Karuna

Glad you found it! I hate when those things are hidden! =D

Okay, small knife??? what is that? is that one of those items to get the lab back in repair??? Just curious as the only thing i need to complete with VV3 is finding collectibles, with which i quickly grew bored and frustrated, so quit playing it.

It's not obvious, what it is, but it is one of the objects needed to repair the alchemy lab. Others have described it as a stick or a stirrer. The official guide to VV3 refers to it as a "small knife".