The driver is known only as "Amritpal", the name under which he was listed in the Uber app.
Amritpal picked up the woman in the Yonge Street to drive her to her home near Lawrence Avenue on Tuesday, police said.
The woman was sexually assaulted in the vehicle around 1 am and reported the incident to police shortly after.
The woman was suffering from minor injuries. This is the first report of a sexual assault involving an Uber driver in the city, police was quoted as saying by National Post.
Uber spokesperson Xavier Van Chau said in an emailed statement that the web-based taxi provider is cooperating with police and the driver was immediately removed from the platform.
"Upon learning of these disturbing allegations, we immediately removed the driver from our platform and have reached out to law enforcement to assist in any way that we can," the spokesperson said.
The allegations come at a time when municipalities in Toronto are struggling with how to regulate the car-sharing service.
Questions have also been raised about the safety of riders as similar sexual assault allegations have been made around the world, including India, in the past.
A Uber driver in Mississauga was charged with sexual assault in May. Police alleged Osamah Al-Mandalawi, 25, picked up and dropped off a group of three women. When the driver approached the home of the third woman, he allegedly told her she needed to "pay in cash or by other means."
Police allege the woman left the vehicle, but the driver followed and sexually assaulted her.
Uber India was forced to add a panic button to appease app users after a driver in New Delhi allegedly raped a female passenger in December 2014.
In Canada, Uber says its drivers are subject to background checks by the Royal Canadian Mounted Police and local police. Uber also says it systematically monitors driver feedback provided by users to ensure the proper conduct of drivers.
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