The nursery, based within the grounds of the College’s City campus on Granville Road, achieved the second-highest rating from the Government watchdog.
Inspectors, who visited the nursery in February, said children made good progress, and were well-prepared for the next stage of their education.
The College also runs a second children’s nursery at its Hillsborough campus, on Livesey Street, which is Ofsted graded ‘outstanding’.
James Smythe, Deputy Principal, The Sheffield College, said: "It’s great to see children thriving at both of our nurseries. We are very proud of our high quality childcare, and welcome Ofsted’s recognition of that.”
The 60-place nursery is open to students, staff and members of the local community and is open all year round.
The nursery was also praised for the warm and caring environment created by staff, where children feel valued and respected.
The report also stated: "Staff help children to build well on their interests, knowledge and curiosity. They use additional funding effectively to support children's learning and address any gaps in their development."
Inspectors said the nursery was not yet outstanding because staff 'do not always challenge the most-able children as much as possible, to further extend their learning' and 'procedures to develop staff's effectiveness are not focused sharply on further improving the quality of teaching'.
Mr Smythe added: “Our nurseries are open to all parents who live, work or study within the local community. I want to congratulate our senior nursery manager and staff on doing a fantastic job reflected by this latest inspection success.”
The Sheffield College is a further education college that provides full-time and part-time academic, vocational and professional courses to approximately 16,000 young people and adults every year. It has a £321 million economic impact on the city annually.