The Department of Social Services says it happened at the "Kidango" on Mission Boulevard in August.
Investigators say a male staff member touched a child inappropriately during nap time.
Child services said he admitted to rubbing her stomach and then touching her inappropriately.
Parents gathered at the preschool Tuesday night to ask questions about the incident.
A Kidango spokesperson tells ABC7 News the school immediately took action when they received a complaint.
"We did proactively reach out to licensing," said Dan Trimble, Kidango Director of Development. "We immediately removed the teacher from the situation. That teacher was later terminated. The police department was also brought in to conduct investigations that was also done in a timely manner."
Kidango will have to inform parents of the child services report for the next 12 months.
Fremont police have not charged the employee.