The Teddybear Hospital (TH) Project is an effort to increase children's knowledge and decrease their anxiety. It is also intended to improve medical students' pediatric communication skills. This study evaluated the educational effects on participating preschool children and medical students. Preschool children were offered to bring their stuffed toys to the TH at our tertiary academic medical center. Medical students who had completed the pediatric surgery rotation staffed the TH, performed examinations, and interacted with the children. The children's knowledge of anatomy, medical equipment, and healthy lifestyle, along with their level of anxiety towards hospitalization, was assessed using pre- and post-interventional validated survey tools. Preschool peers who did not participate in the TH served as controls. Participating medical students were tested on professionalism and pediatric surgical knowledge during, and 3 weeks after the intervention, and compared to their non-participating peers. A total of 131 children (63 intervention, 68 control) and 48 medical students (16 intervention, 32 control) participated in the study. Children's state anxiety decreased by 0.98 points (95% Confidence Interval [CI] -0.3 to -1.8, P<0.001), while knowledge increased significantly on "healthy lifestyle" by 1.4 points (95% CI 1.01 to 1.79, P<0.05), on "medical equipment" by 4.5 points (95% CI 3.8 to 5.2, P <0.0001), and on "anatomy" by 5.05 points (95% CI 4.73 to 5.73, P<0.01). No changes were detected in any of the outcome measures in the control group. Medical students' objective professionalism increased by 4.2 points (95% CI 1.58 to 6.80, P<0.01) compared to non-participant medical students. The tests did not show an increase in the medical students' pediatric surgical knowledge. Preschool participation in a TH increased knowledge and decreased anxiety regarding hospitalization and medical personnel. It also helped medical students to playfully acquire medical professionalism.