Officers went to Jade Palace at 151 California Ave. at about 7:10 p.m. on reports of a stabbing, Palo Alto police Agent Dan Ryan said.
He said it appears two employees had some sort of altercation in the kitchen area of the restaurant and one man slashed the other man several times with a cleaver.
The victim, who is about 50 years old, was taken to Stanford Medical Center where he was listed in critical condition. Ryan said the victim is expected to survive.
Police used K-9 units and a helicopter in a search for the suspect who remains outstanding, Ryan said.
The suspect is described as a 50-year-old Asian man, about 5 feet 6 inches and 150 pounds with short black hair. He was last seen wearing a white shirt over dark pants.
Anyone with information regarding the case is asked to call the Police Department's anonymous tip line at (650) 329-2190.