The troubled comedian was arrested last month after being caught on surveillance tape assaulting a worker named Forrest Liebenberg.
According to TMZ, Williams has claimed that he slapped the employee for calling him a racial slur.
During a set at the Comedy Store club in Hollywood last night (December 19), Williams addressed the incident, saying: "This is what the dude at Target said... 'Your assistant is already suing you, you p***y ass n***er'."
The comedian went on to explain that when he confronted the worker about using the word, the employee replied: "You say it all the time."
Williams alleged that he warned Liebenberg not to use the slur again, and when he did, slapped him.
Liebenberg was reportedly fired from his job after the incident, though bosses have yet to divulge why.
The 43-year-old Williams has been experiencing a series of legal troubles in recent months. He currently faces a bench warrant over his apparent involvement in a Seattle bar fight.
Watch Katt Williams's stand-up comments below: