State officials said the ?entirely inappropriate? structure was used as a ?withdrawal space? for the child.
The school principal has been placed on administrative duties and state education minister Joy Burch said she had ordered a full inquiry.
Australian media said the child in question was 10 and had autism.
The structure was reported to measure 2m x 2m and was made of pool fencing.
Ms Burch said she was made aware of the reports last week after someone at the school raised the alarm. The space was put up in March and had since since been taken down, she said.
?Words cannot put into place my absolute disappointment and horror that anyone in our schools would consider a structure of this nature in any way, shape or form to be acceptable,? she told reporters.
Education experts say children with autism or other behavioural needs can benefit from having a quiet place in which to do their work or to calm down if they become agitated.
But the director general of the ACT?s Education and Training Directorate, Diane Joseph, said the Canberra school?s decision was ?entirely inappropriate and unacceptable? and ?raises so many questions?.
?This is not how our students should be treated,? she said.