The route 125 bus from Lemon Tree Passage was thrown into panic about 8am when, police allege, a teenage boy escalated an argument with a Newcastle High student by pulling out what witnesses said was a 20 centimetre blade.

A 16-year-old fellow student reacted quickly and grabbed the alleged knife-bearer's wrists, jammed him into a seat and made him drop the weapon.

"He just forced him into the seat by the wrists from behind," the father of the 16-year-old, who asked not to be named, said.

Newcastle High students did not think the boy who allegedly had the knife was a student at the school.

The bus had also been carrying adults and students from other schools.

With the alleged threat averted, someone on the bus rang police, who arrested the teenager at the high school.

He was charged with common assault, wielding a knife and having a knife in public and was bailed to appear at Broadmeadow Children's Court on May 3.

Newcastle High students were told of the incident when school began, and offered counselling.

The father of the boy who allegedly disarmed the arrested teenager said his son had gone to class as normal, and gone to soccer practice after school.

"Everyone on the bus gave him a big standing ovation, but I think he's just taken it in his stride," he said.

"The talk around the school was that he stopped what could have become an incident."

The use of knives by students has devastated high school communities this year, in the Hunter and nationally.

A Waratah Public School student was suspended last month for menacing her classmates with a closed pocket knife.

In the same week, a 12-year-old boy was stabbed to death at a Brisbane school, and two Sydney boys, aged 11 and 14, pulled knives threateningly in separate incidents.