William Evans, from Axminster, Devon, found the reptile stuck to the bottom of the Tesco-bought multi-grain loaf when he went to slice some off for breakfast.
William told his local newspaper: "I was making some toast and cut off a slice when I saw something that looked like a leaf.
"So I took the wrapping off and found the lizard inside. It certainly put me off my toast! It was about two to three inches long."
His dad, Marcus, added: "The poor little lad was absolutely traumatised by it.
"He went to take a slice off for some toast, turned the loaf over and found the lizard stuck on the bottom.
"The lizard had not been cooked so it must have got into the packaging and died there.
"You could see the impression of its body in the bread so it must have been warm when he got in."
Mum Clare said the only positive note was that he hadn't sliced through the end with the lizard on it - and unwittingly eaten it.
"That would have been even more distressing," she said.
Tesco said they would investigate, but were adamant there was no health risk.
"We have conducted a thorough inspection of the bakery area as well as the rest of the store, and we are confident that our robust procedures mean that there was no food safety risk to the product whilst it was within the store," a spokesperson said.
"If the customer would like to return the product, packaging and proof of purchase to us, we will be able to investigate further."