Background: In July 2008 a case of smear-positive pulmonary tuberculosis (TB) in a white UK-born nursery teacher was notified in London. The case had been symptomatic for 9 months while working in the nursery. The outbreak is described and the protective effect of BCG vaccination against latent Mycobacterium tuberculosis infection as measured by an interferon gamma release assay (IGRA) is assessed. Methods: Screening by chest X-ray and IGRA of nursery children, staff and their contacts was conducted using a 'stone-in-the pond' approach. Information was collected on various factors including BCG vaccination status, and data were analysed using multivariable logistic regression. Results: Overall, 168 children, 31 staff members and 57 other adults associated with the nursery were screened for TB. There were 12 cases of active TB and 43 cases of latent TB (72% children). 37.5% (95% CI 18% to 56%) and 40% (95% CI 30% to 50%) had a positive IGRA among teachers and children, respectively. 42% of children and 60% of adults were BCG vaccinated. In the adjusted analysis, BCG vaccination showed a significant protective effect against M tuberculosis infection in children (OR 0.25, 95% CI 0.09 to 0.69) and being taught by the index case was associated with acquiring TB infection (OR 18.91, 95% CI 4.43 to 80.79). A vaccine effectiveness of 66% was calculated, implying that 21 of the 32 infections could have been avoided if all children had been vaccinated with BCG. Conclusions: This outbreak shows extensive transmission of TB among very young children. BCG seems to have a protective effect against TB infection as assessed by positive IGRA in this cohort.