A teacher, accused of abusing children at a Beijing kindergarten, and a woman blamed for spreading rumours about the case, have been detained, state media said on Wednesday.
The case prompted a nationwide inspection of kindergartens.
The 22-year-old female teacher allegedly used sewing needles to discipline children who would not sleep, Xinhua news agency said.
Reports last week of children being sexually molested, pierced with needles and given unidentified medicine at RYB Education New World Kindergarten caused a national outrage, but some of the claims turned out to be untrue.
The investigation was complicated by the absence of CCTV footage.
Footage of the class where children were allegedly pierced with needles had been damaged due to frequent power outages, Xinhua said.
Investigators said an employee in the surveillance room was annoyed by the noise made by the monitor and would frequently cut electricity after school.
Police said they had found no evidence of sexual abuse, and a woman was detained on suspicion of spreading rumours that children were being molested.
Another woman received a police warning for the same reason.
A parent who last week told state media his child had reported being fed two unidentified pills every day after lunch later said he had instructed his child to tell the made-up story, according to Xinhua.
Another parent who had claimed that naked male doctors had given her daughter a checkup later admitted to have fabricated the story.
In response to this case, the government has ordered a nationwide inspection of kindergartens.
Investigation into this case was ongoing.
Beijing-based RYB Education operates more than 1,300 day care centres and about 500 kindergartens across China and is listed on the New York Stock Exchange.