Chongqing Banan City police said the children were cut back after their morning exercise in the Yudong New Century Nursery around 9:30 am local time.
Security employees and school staff were able to hold back the 39-year-old attacker. A video from the scene seemed to show angry onlookers beating and kicking the woman after she was detained.
Chongqing resident Xia Yang told CNN that large crowds had gathered at the scene after the incident and videos of injured children were circulating on Chinese social media. The police said the investigation continues.
According to state media Xinhua, the murderer had "wanted to avenge his former classmate had teased him" and bought the knife online.