To determine vaccine effectiveness (VE), a varicella outbreak in a highly vaccinated daycare center (DCC) population in Pennsylvania was investigated. In Pennsylvania, proof of immunity is required for children greater than or equal to12 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 greater than or equal to12 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.