Along with staff, they took refuge in a local hotel last night.
Fire crews from Banbury, Hook Norton and Deddington Stations, along with a hydraulic platform from Warwickshire Fire & Rescue Service, tackled the fire in Horse Fair.
Oxfordshire Fire & Rescue was called out just after 5pm and managed to extinguished the fire, preventing it from spreading to surrounding buildings.
Staff at the nursery had quickly evacuated the children and themselves when the fire alarm sounded and the Whately Hall Hotel kindly allowed them to take refuge in their premises in order to stay warm and safe.
An investigation into the cause of the fire is now underway.
Banbury Fire Station Manager Dave Edge said: "This was a significant incident where the fire in the roof quickly took hold. I want to praise staff at the nursery for their quick actions in evacuating the children which of course is the most important priority in a fire like this.
"Although there is significant damage to the roof, I am very proud of how the crews tackled the blaze and the fact that there was no spread to the neighbouring properties shows how well trained our crews are."
Thames Valley Police also attended yesterday and re-routed traffic so the hydraulic platform could gain closer access to the roof of the property.
Crews used Thermal Imaging Cameras to confirm that the fire was fully extinguished.
The fire service is urging local businesses to regularly carry out fire drills and practice full evacuations.