Sheffield Crown Court heard how the incident took place just a day after Bethany O'Brien, aged 22, was released from a mental health facility.
A woman living at the same Sheffield property as O'Brien, which was mostly occupied by young people, went to confront her about some 'problems developing' there, explained David Wain, prosecuting.
He said: "The defendant was in her own room when the complainant entered with two others, and they started arguing."
O'Brien grabbed a knife she had been using to self-harm and used it against the complainant, who was left with two large cuts to her forearms that required nine stitches, the court heard.
The young woman also suffered a cut to the bridge of her nose.
O'Brien pleaded guilty to one count of affray in relation to the incident, which took place on November 20, 2015, during Thursday's hearing.
Richard Thyne, defending, told the court: "What I submit can properly save her from immediate custody is that particular set of circumstances, her good character, her mental health difficulties and the fact this trouble came to her when she was vulnerable - rather then her going out to seek trouble."
Mr Thyne added that in the two-and-a-half years since the incident occurred, O'Brien had stayed out of trouble, had engaged well with the different agencies involved in her care and would be separated from her four-month-old baby, should she receive an immediate custodial sentence.
Judge David Dixon said he was able to take an 'exceptional course' and suspend her 12-month prison sentence for a period of two years.
"In my view this happened when you were incredibly vulnerable, and the knife you used is one you were using on yourself. That indicates just how vulnerable you were," said Judge Dixon.
He added: "I am taking an exceptional course, and am giving you a chance. I hope you take it."
Judge Dixon also ordered O'Brien, now of Thornhill Road, Huddersfield to complete a 35-day rehabilitation activity requirement.