Police say Jose Neri was high on drugs when he planned to hurt people at a church behind his house.
Residents who saw Neri called authorities fearing Neri was armed and poised to ignite a Molotov cocktail.
"He was using methamphetamine," said Santa Ana police Cpl. Anthony Bertagna, who added that Neri was delusional and thought he saw church members coming to him through mirror in his home.
Officers arrived to find the 18-year-old documented gang member in an alley next to a church in the 500 block of South Van Ness Avenue.
Police said they also found a bottle filled with lighter fluid and 10 bullets, with a black cloth stuffed in the opening as a wick.
Inside and outside Iglesia Cristiana Principe de Paz, about 50 people, including seniors and children, were playing basketball.
"With that many people there, if he had ignited this Molotov cocktail, there could have been a lot of people hurt," Bertagna said.
Police allege Neri admitted to officers he was going to throw the fire bomb at people at the church.
Authorities said they were grateful someone called police to report his suspicious behavior.
"I'm glad they caught them because they saved lives, saved kids lives and they saved the church," said Santa Ana resident Diana Gomez.