The bizarre accident occurred as the TV magician was filming a segment for ITV's The Sooty Show last month. According to The Sun, the scene saw the much-loved puppet throw a pizza at Daniels's head.
However, the second take saw puppet operator Richard Cadell put too much force into the throw. A dazed Daniels received medical attention and was taken to A&E to be treated for suspected head injuries and a black eye.
"Paul was such a good sport and so professional," a source told the paper. "He's insisted they use the scene where he got injured, not the first one.
"Well, he did suffer for his art, so it would be a shame to waste it. And after all, it's only a puppet!"
The 73-year-old's agent said of the incident: "It damaged his eye. We had to go to hospital and [he] cancelled a gig. But he's made a full recovery and is about to go to the Edinburgh Festival for a month."
Writing on Twitter, Daniels criticised the tabloid's report, adding that the "accident was AGES ago".
"All that happened that I got hit in the eye with a pizza and called into a lovely local hospital on the way home to have it checked," he stated, claiming that the story could cause fans to think his show was cancelled.
The Sooty Show will be seen on ITV1 later this year.
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Watch an archive clip of Paul Daniels producing a rabbit from a hat below: