A kneading cat is a happy cat. This behavior stems from when your cat was a kitten and had to knead to get milk from its mother's teat. Kneading is a form of instinct for your kitty. If your cat is kneading with his claws, simply trim his nails to prevent any injury to you or damage to items. If you still want to break it of this habit, then you will need to train your cat not to knead. When training your kitty, you will need to be patient and consistent.
Lay the cat down. When your kitty starts to knead, gently pull him down while saying "no." This makes the kneading process awkward and hard to accomplish. Once the cat stops, reward it with a treat and praise.2
Tap the kitty's nose. When it begins to knead, gently tap its nose and say "no" in a firm tone. When it stops, reward it with a treat and praise.3
Spray your kitty with water from a clean water bottle when it begins to knead. This will signal it to stop. Never yell, strike or make a load noise to stop your cat from kneading. This will only scare it and may cause it to become afraid of you.4
Hire a professional. There are many cat trainers available that are willing to help you train your cat. Look in the phone book or visit your local pet center to find more information on cat trainers.