BackgroundPhysical activity participation among preschoolers in childcare settings are low, and interventions to increase physical activity levels have produced mixed results. The Physical Literacy in the Early Years (PLEY) project implemented a six-month childcare-based outdoor loose parts play intervention in childcare centres in Nova Scotia, Canada. The purpose of this study was to examine the impact of the PLEY project on the development of domains of physical literacy (physical activity, physical competence, confidence and motivation, knowledge and understanding) in preschoolers attending childcare centres using mixed-methods.MethodsPreschoolers (3–5 years) were recruited from 19 childcare centres in Nova Scotia and centres were randomized (parallel design) to the outdoor loose parts play intervention group (n= 11) or control (n= 8) group for 6 months. Participants, early childhood educators, and assessors were not blinded to group assignment. Quantitative and qualitative measures were used to comprehensively assess the impact of the PLEY project on all domains of physical literacy. At 3- and 6-months, early childhood educators participated in focus groups to assess how the intervention supported the development of 4 physical literacy domains: physical activity, physical competence, confidence and motivation, and knowledge and understanding. Physical activity and physical competence were also assessed with accelerometry and the Test of Gross Motor Development-3, respectively.ResultsTwo hundred and nine preschoolers participated in the study (intervention group:n= 115; control group:n= 94).Accelerometer data showed that while baseline physical activity was similar between groups, children in the intervention group had higher physical activity at 3- (F(1,187) = 8.30,p= 0.004) and 6-months (F(1,187) = 9.90,p= 0.002) post-intervention. There was no intervention effect on physical competence scores. Thematic analysis of focus group data revealed that outdoor loose parts play contributed to development in all 4 physical literacy domains, including increased movement repertoires, social development, and enjoyment of physical activity. No adverse events or side effects of the intervention were reported.ConclusionsParticipation in the PLEY project was associated with increased development of various domains of physical literacy and perceived physical literacy among preschoolers, and outdoor loose parts play may be encouraged as an effective strategy to increase physical literacy in early learning settings.Trial registrationBiomed Central (ISRCTN14058106), 20/10/2017.Supplementary InformationThe online version contains supplementary material available at 10.1186/s12889-023-16030-x.