Parents in east China's Zhejiang province complained to the local education department after the cruel images were posted on a social networking site.
One picture showed 21-year-old Yan Yanhong smiling as she hauled the screaming boy several inches off the ground at the school in the city of Wenling.
Police said Yan had been detained for provocative and disturbing behaviour.
The other teacher who took the photo, surnamed Tong, was given a 7-day administrative detention, state-run Global Times reported.
The photo, which was taken about one month ago and posted on-line on Wednesday by a parent has triggered public outrage, the report said.
Yan's personal blog contained other photos showing her mistreating children.
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Other pictures showed young children with their mouths taped shut and their hands stuck to the desk to make them sit still. Another shows a child forced into a bin, with their back awkwardly arched over the side. A final picture shows a youth with a rubbish bin on their head.
Yan, who had been working for the kindergarten for two years, told the local Wenling Daily that she was just playing with the children.
"I thought it was fun, so I pulled his ears and asked my co-worker to take a photo. The 5-year-old boy was quite naughty and after the ear-pulling he didn't make any mistakes the rest of the day," Yan said.
Tong said she tried to stop Yan and advised that it would cause trouble if the photo was posted on-line. "I never expected it would actually come true," said Tong.
A parent also uploaded the records of an on-line chat she had with Yan, in which Yan said she got the job through her connections and did not have a teacher certificate, which was later confirmed by the local education bureau.