An explosion was reported at the Cheesecake Factory at about 18:00 local time on Thursday, according to police.
Diners were safely evacuated and no one was injured in the reported blast.
The man tossed a "homemade pyrotechnic device" containing gunpowder inside the restaurant before fleeing, a police official said.
Garrett Gunkle, who was sitting with his wife at the bar, told KNBC-TV there was chaos as customers ran for the exits in the Los Angeles suburb.
"People were jumping over one another, fighting to get over bar stools," he said. "It was very chaotic."
The Los Angeles County Sheriff's Department bomb squad joined Pasadena Police Department at the scene.
Police Lt Mark Goodman said the device was not a pipe bomb or a Molotov cocktail, and no shrapnel or projectiles were ejected.
Investigators say the suspect was described as Latino or Middle Eastern, about 6ft tall (1.82 metres), with a heavy beard and wearing all-black clothing.
No getaway car was seen.
A motive for the incident was unclear.
"It could be a dissatisfied customer, a disgruntled employee," Lt Goodman added.
Federal authorities were alerted to the incident, police told KABC-TV, but local authorities are handling the investigation.

Steven Van de Velde, 21, pleaded guilty at Aylesbury Crown Court to three counts of rape against a child.
The court heard how he travelled from Amsterdam in August 2014 and raped the girl near Furzton Lake, and at an address in Milton Keynes.
Van de Velde, who will be sentenced in March, returned to the Netherlands, but was extradited and arrested in January.
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The court heard how Van de Velde, of Cornelis De Wittlaan, Den Haag, was aware of the girl's age, having had conversations on various social networking sites.
A survey for CBBC Newsround suggests more than three-quarters of children aged 10 to 12 in the UK have social media accounts, even though they are below the age limit of 13.
Authorities are searching for a suspect who hurled a homemade incendiary device into a crowded restaurant in Pasadena, California.
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A Dutch international volleyball player travelled to Milton Keynes and raped a 12-year-old girl he met on Facebook.