Can you post a picture? Depending on design, you may be able to wet mold it to get a better fit. In case you aren't familiar with it, it is exactly what it sounds like. Soak the sheath with water and mold it around the knife. When it dries, it'll keep the shape that you mold it to and fit the knife perfectly. It can cause some distortion to tool work on the leather, but it should be minimal and usually isn't noticeable at all. If the knife is carbon steel you can wrap it with plastic wrap or just remove and clean it immediately after molding to prevent it from rusting. If its stainless, that shouldn't be an issue. If you can post a picture showing what style sheath it is, some of the other guys on here with more experience may be able to give a better/easier solution.
Hope this helps.
Matt Toms