The singer was recording an interview with Phoenix Nights star Paddy McGuinness for BBC Three's Lily Allen And Friends when she began playing with her exposed right nipple.
According to onlooker Rob Difrancesco, she did not pop it back into her top for three minutes.
He said: "Lily and Paddy were both quite lively. They were sitting on the sofa and she pulled out her right boob. Everyone in the audience was doing a double take as Lily sat there with her breast hanging out.
"Paddy was trying to grab her breast and he joked to Lily that she was arousing him. That's when she started playing with her nipple.
"She was playing to audience and kept it out for about three minutes. It was surreal."
Allen showed off her third nipple during an appearance on The Friday Night Project last summer.