Cut across the bottom of the bubble with a box cutter or single-edge razor blade. Carefully peel the tape back, using the small putty knife if necessary, to expose the joint compound beneath it.
Scrape off the old joint compound carefully with the small putty knife. Avoid damaging the drywall.
Apply a 1/8 inch thick layer of fresh drywall mud to the drywall under the bubble.
Fold the tape back into place. Use the flexible taping knife to smooth the tape and squeeze out the excess joint compound, leaving at least a 1/16 inch thick layer beneath the tape.
Apply a new layer of joint compound over the tape, spreading it smoothly and pressing the tape into the mud. Let the joint compound dry for 24 hours.
Sand the area until it is smooth. If necessary, add another layer of joint compound and let it dry. Sand again. Prime and paint the area to match the rest of the wall.