To determine vaccine effectiveness (VE), a varicella outbreak in a highly vaccinated day-care center (DCC) population in Pennsylvania was investigated. In Pennsylvania, proof of immunity is required for children >or=12 months old for DCC enrollment. Questionnaires were administered to parents of children who had attended the DCC continuously during the study period (1 November 1999-9 April 2000) to determine history of varicella disease or vaccination and for information about any recent rash illnesses. VE was calculated for children >or=12 months old without a history of varicella. There were 41 cases of varicella among 131 attendees, with 14 cases (34%) among vaccinated children. VE was 79% against all varicella and 95% against moderate or severe varicella. Vaccination at <14 months was associated with an increased risk of breakthrough disease (relative risk, 3.0; 95% confidence interval, 0.9-9.9). Despite varicella vaccination coverage of 80%, a sizeable outbreak occurred. Early age at vaccination may increase the risk of vaccine failure.