Experts say "woeful" underfunding and a recruitment and retention crisis have contributed to too many children receiving inappropriate levels of care and education at a crucial development stage.
At the end of March, at least 851 three and four-year-olds were being looked after by childcare providers in Sheffield rated "inadequate" or "requiring improvement", figures from the education watchdog show.
They include five children attending early years settings that received the lowest possible Ofsted grading of "inadequate".
It means six per cent of the three and four-year-olds who have places at Government-funded facilities in Sheffield were cared for by negatively-rated institutions or childminders.
The largest proportion of children their age (69%) attend settings inspectors rated "good" while 19 per cent enjoy "outstanding" care in the area.
In addition to those, there are other youngsters attending settings that do not currently have an Ofsted rating.
The figures cover all providers that receive funding giving children of that age 15 free hours of care and early education for up to 38 weeks a year. They include 3,263 children of working families, who are entitled to an additional 15 hours under the Government's tax-free childcare scheme.
Families can use their allocation of hours at providers including childminders, private and school nurseries and pre-schools.
Across England, the vast majority of children attended "good" or "outstanding" facilities in March but there were more than 71,000 cared for in settings that "require improvement" and over 21,500 looked after by "inadequate" providers.
Ofsted's Gill Jones said the majority of nurseries and childminders were doing a brilliant job, but added: "There are still too many children attending provision that isn't good enough.
"The early years are absolutely crucial to children’s learning, development and care, and we want to see every child get the best start in life."
The Sutton Trust, which campaigns for equal access to high quality education, said that a child's first four years play a significant role in determining their chances later in life.
Chief executive James Turner warned that the gap in outcomes between disadvantaged children and their peers can first take hold in the early years and called on the Government to increase funding for the sector.
He said: "We know that the best way to close this gap is through high quality early years education, which is more important than ever as we begin to recover from the pandemic."
Deborah Lawson from early years union Voice said the quality of care and education children receive can impact their outcomes in life.
Claiming some early years staff could earn more "stacking supermarket shelves", she said the sector had been "woefully underfunded" for decades and was struggling with a recruitment and retention crisis.
A Department for Education spokesperson said there had been unprecedented investment into childcare over the past decade.
She added: “Standards remain high, with 96 per cent of childcare providers rated good or outstanding by Ofsted.
"It’s testament to the dedication and hard work of early years professionals, which we have seen during this period of uncertainty.”