Police officers rushed to Ballantrae Road in Douglas after reports of a disturbance between two men at about 3am on Monday.
A 31-year-old man was stabbed and taken to Ninewells Hospital with a punctured lung. His injuries are not life-threatening.
Residents told of hearing a “ruckus”, before police and ambulance crews blocked off the road in both directions.
Sales consultant AnnMarie McCabe, 33, said: “My partner heard them shouting and then they started physically fighting on the street right here outside the block.
“There was a couple of ambulances and police cars there was a lot of police activity.
“I didn’t see anyone lying on the ground, so he was maybe in the back of the ambulance.
“When I got up this morning the police officers were looking at the ground and there was a blue sheet on the ground.
“It’s just shocking and scary for something like that to happen on our doorstep.”
A Police Scotland spokeswoman said inquiries into the incident are ongoing.