In order to acquire the mutated toe, the Chosen One must spend a certain amount of time in toxic waste without protection, causing the mutation to occur. The toe can then be amputated and acquired as an item in a medical center equipped with an Auto-Doc.
It is important to note that having a mutated, unremoved toe will result in failure of the Vault City citizenship test.
Some non-player characters claim the toe is a one-hit K.O. device for destroying Frank Horrigan, but that is only a joke, although it does lower his max HP by 3 points.
In a rather humorous note, the game responds with "You just ate your fucking toe!", whenever it is consumed.