The 65-year-old woman had been looking after a 14-year-old foster child when the allegations, including a sexual act on a bus and sexualised chats, surfaced in late 2022.
The woman initially admitted wrongdoing and her working-with-children check was revoked by the Office of the Children's Guardian in August 2024.
However, she successfully appealed this on Wednesday with the NSW Civil and Administrative Tribunal ruling she could work with kids.
In an NCAT hearing, she denied the allegations, some of which the tribunal found were fanciful.
The tribunal dismissed arguments by the Office of the Children's Guardian that the woman - who cannot be legally named - posed a risk because the allegations might be true.
"In our view the risk is currently no greater than that of any adult harming a child," it wrote.
It believed the 65-year-old's claims she admitted wrongdoing to protect the child from being investigated by NSW Police for making false complaints.
Her 40-year-long career in the foster industry was unblemished and she posed no risk to children in the future, NCAT found.
The tribunal criticised an investigation report by her employer Anglicare for not objectively examining claims against her.
"When the evidence in that report is considered it appears ... that the evidence of (the carer) is discounted and the evidence of the young person is amplified even when it is discredited," the tribunal wrote.
Police reviewing CCTV footage from the bus found no evidence of any sexual misconduct.
The teenage girl had herself inquired about sexual matters, asked the carer to watch her commit sexual acts and tried to get into her bed, the tribunal heard.
While the 14-year-old did find a sex toy in a parcel, this was a present to the carer from her partner at the time, the tribunal heard.
The woman's appeal was filed before September 2025 when the NSW Labor government passed legislation barring NCAT from hearing appeals over working-with-children clearances.
Instead, any review process will be conducted internally by the Office of the Children's Guardian after concerns were raised sexual perpetrators were using the tribunal appeal process to gain access to children.
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