JR,
Leather workers call it casing. Warm water in a sink or bowl. Submerge the entire piece for about 5 seconds. Take it out and wrap it up in a plastic bag. Leave it for 6-12 hours.
What you are trying to do is add only as much water as you have to and let the water dispurse equally through all the cells. If there is too much water, when you stretch it, it won't hold the shape. Too little and it won't stretch easily and/or as much as it can.
If the casing is right, once the leather stretches, it will stay stretched so leaving the knife in won't be necessary.
If you have access to the plastic used to make overhead projector slides, folding and trimming a piece to sandwich the knife and pushing it into the sheath with the knife after most of the stretching has been done will move the leather a little bit more and make it fit better, with less rubbing, after it dries. That's a thing holster makers often do.
Mike
PS ~ Some folks say hold the leather in water until the bubbles quit coming out. My experience is that is too long a lot of times, but the bubbles will sort of tell you something.