Police launched the investigation after allegations emerged that the child took part in sexual activity with two other children.
The two other children were aged five and seven. Durham Police were the force that interviewed the child, Telegraph reported.
A study recently reported a raft of cases that involved children being quizzed by police officers regarding illegal sexual activity with other children.
The number of cases has doubled in just three years. In 2015, 1,047 children were interviewed by police regarding illegal sexual activity, the report said.
Former police officer Jim Gamble who runs child protection firm said, "I suspect the figures are the tip of an iceberg".
"Children are now at risk not only from online predators and street grooming gangs but from other children too," Gamble said.
In addition to the three-year-old in Durham, children under five were identified as suspects by three other forces - West Yorkshire, South Wales and West Mercia.
South Yorkshire Police, which investigated the Rotherham child grooming scandal in which an estimated 1,400 children were sexually abused over 16 years, had the biggest number of investigations into illegal sexual activity between children in 2015, with 172.
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