I'm going to make the assumption that the leather is veg. tan. You can soak just the strap in water for no more than 30 seconds, then heat the sheath at 150 degrees for 20 minutes. I use a toaster oven. Check to see if it has shrunk. If it hasn't shrunk enough, heat for another 20 minutes. Once you get it to where you want, let it dry out for 24 hours before using. I would also suggest that you put a very thin coat of pure neatsfoot oil on the sheath. If you don't have neatsfoot oil. use virgin olive oil. These oils may darken the sheath somewhat, but heating it will deplete some of the leather's natural and tanning oils.
Remember to soak only the part that you want to shrink.