The NHS Borders Health Protection Team said it is liaising closely with Cherrytrees nursery in Hawick and colleagues from other agencies to manage the situation.
As a preventative measure, anyone who attends or works at the nursery and could have been exposed to the infection is being asked to stay at home and potentially be tested to help contain any spread of illness.
Authorities said the nursery will reopen as soon as is practical.
The health protection team said it is a “probable outbreak of E.coli O157” affecting children.
Dr Tim Patterson, director of public health at NHS Borders, said: “I want to reassure people that the measures we are taking are preventative in order to limit the spread of this infection.
“Symptoms of E.coli include diarrhoea, stomach cramps and occasionally fever. About half of people with the infection will have bloody diarrhoea.
“If you or your child have attended Cherrytrees nursery since May 9 and develop any of these symptoms then call your GP (or NHS 24 on 111 if your GP surgery is closed) and let them know.
“They may arrange for your child to come to the BGH (Borders General Hospital) to have their stool and bloods checked. If your child is well you will be able to go home to wait for the results.
“I would like to take this opportunity to thank the management and staff of Cherrytrees in Hawick for their co-operation in this process.”
The nursery’s directors Lisa and Stewart Bennet said: “Cherrytrees nursery would like to thank our parents, staff and management team for being so understanding at this time.
“It has been identified as an external source and we are working with Public Health Scotland to get the nursery back up and running as quick as possible to continue the excellent childcare that our nursery provides.”