Rev Tommy Kalathoor Matther, 48, needed urgent first aid from parishioners after an armed man entered the Italian-language service at St Matthew's Church in Melbourne and attacked him.
According to the Archdiocese newspaper Melbourne Catholic, the alleged perpetrator had previously voiced his objection to Rev Tommy's Indian heritage and accused him of being a Hindu or Muslim before the attack.
Rev Tomy with parishioners at a Thanksgiving dinner in December 2016
The man who allegedly stabbed him was charged with intentionally and recklessly causing injury and bailed until 13 June.
He has since been taken to hospital for psychological evaluation, police say.
The priest was released from the Northern Hospital on Monday after receiving treatment for a stab wound to the neck.
A statement on St Matthew's Parish Facebook page says: "We understand what has happened has been shocking to our parish community. Fr Tomy would like to say that he is recovering well and is in good spirits. His first thoughts have been for the parishioners and the school community. To all of you, thank you so much for your prayers and thoughts."