A middle-aged man dressed in black sexually assaulted a four-year-old girl and a five-year-old boy after luring them from a holiday school care centre in North Perth.
The bespectacled man later dumped the children at nearby Hyde Park.
Police say they were taken from the Fitzgerald Street centre some time after 11.15am on Tuesday and were found by a member of the public in the park's playground area about an hour later.
Commander Kylie Whitely said the man lured the children to walk away with him and it was not known where they were assaulted.
"They were enticed, they were offered something to leave the centre," Cdr Whitely told reporters.
"It's every parent's worst nightmare."
The holiday school-care facility had not noticed the children, who were not related to each other, were missing until they were found and the alarm was raised.
"That's obviously subject to investigation by the appropriate regulatory authorities," Cdr Whitely said after being asked why no one had noticed the children had been missing for an hour.
"Our primary concern at the moment is the two victims and making sure they get the appropriate support, and their families.
"The parents are very distressed and obviously the children are very upset."
Cdr Whitely said it was a very serious incident and every available police resource was being thrown at the case.
The children had provided information and CCTV footage was also part of the investigation, she said.
