Parents at a Montrose preschool had to sign a document indicating they were comfortable with a small nativity set, Fairfax Media has found.
A parent at Japara Neighbourhood House in Montrose rang radio station 3AW on Friday morning expressing disbelief that she was asked to give permission.
Joanne Scanlan, the executive officer at Japara, told Fairfax Media the nativity set would have been withdrawn if a parent had indicated they were uncomfortable with it.
"It was one small Fisher-Price set," said Ms Scanlan. "It was a nativity scene of Christmas and we were advised to ask the parents to just...initial next to the child's name when they signed them in that they had no problem with it being in the room."
Ms Scanlan said she made the decision requesting parents to sign.
"It was made by myself. It was brought to me and I said as long as the parents are comfortable with it, that's fine.
"It was purely to respect everybody's beliefs."
Ms Scanlan denied being overly politically correct, saying "I thought I was making a decision that meant that everybody felt at ease."
But she said she would have withdrawn the set if a parent had indicated they weren't comfortable with it.
"I wouldn't have had it on display when that child was here...(it) would have made that family feel comfortable. That's the respect that I have for them."
Ms Scanlan said she didn't know if any parents had raised objections. "In hindsight it probably wouldn't have mattered if we hadn't done it," she said.
The news comes after City of Monash councillors rejected a motion earlier this week to change the wording on council decorations from Season's Greetings to Merry Christmas.
Mayor Micaela Drieberg defended the move, saying a large proportion of signs already had Merry Christmas written on them. The "Season's Greetings" signs were there to reflect the beliefs of Jewish residents and others who did not celebrate Christmas, she said.