Tri Ceffyl Bach Nursery in Amlwch was closed as a precaution last Thursday.
Testing has been offered to children and adults, and so far three cases of E. coli O157 have been detected in children.
Public health officers and environmental health teams from Betsi Cadwaladr university health board and Anglesey council are investigating.
Health officials warned that there could be further cases.
Nursery staff, and those in "at-risk" groups who are close contacts of people who are unwell, are also being tested.
Dr Chris Whiteside, consultant in communicable disease control for Public Health Wales, said: "Given the nature of this infection it is not unusual for more cases to be identified amongst children attending the nursery.
"This is why the nursery was closed and the children and staff were asked to be tested.
"Investigations into the source will continue.  However, it can be difficult to identify a definitive source in an outbreak like this because the bug is so easily spread where young children are concerned.
"No children or staff will be allowed to attend the nursery until they have received two negative tests for E. coli O157 taken at least 48 hours apart."
People can become infected with E. coli O157 by eating contaminated food, or through contact with infected people, farm animals or contaminated water.
Dr Whiteside stressed that the infection could be passed from person to person, and so anyone who was ill should observe strict personal hygiene to avoid spreading the infection.
Symptoms of E. coli O157 range from mild diarrhoea, stomach cramps and fever to severe bloody diarrhoea.
The incubation period can range from one to 14 days, but is usually three to four days, and people with E. coli O157 are usually ill for up to two weeks.
Three cases of E. coli have been confirmed in an outbreak at a children's nursery on Anglesey.