Blackheath preschool operators and community groups have gathered more than 200 signatures on a petition opposing a long day care centre in the town.
Childcare Specialists Australia Pty Ltd, a company which specialises in designing and building centres, has applied to build on Prince George Street, on land which used to be a bowling green and until recently was used by the croquet club.
The $850,000 for-profit project proposes to take 84 children - 24 up to the age of two, and a further 60 aged from two to five. It would operate from 7am to 6pm Monday to Friday.
But the two existing preschools in town - Blue Gum Montessori and Kookaburra Kindergarten - fear that their not-for-profit businesses will suffer.
They argue there are sufficient preschool places in Blackheath and point out that the new centre on the old Katoomba bowling green is due to open soon, offering more than 100 long-care places.
Kerri-Anne O'Donnell, director of Kookaburra, said her centre had a long connection to the community.
"For over 60 years Blackheath Kookaburra Kindergarten has been an integral part of the community providing affordable quality early childhood education to young children. The proposed development will impact on the unique relationship we have with the local area," she said.
Alima Clarke, director of Blue Gum Montessori Pre School, said: "A development of this scale in the small village of Blackheath will put our community-based preschool at risk of closure."
Jo Ridley, executive officer of the Blackheath Area Neighbourhood Centre, believed another centre would create an oversupply of long day care places.
"The notion of the move towards a large profit service is a concern to the community," she said.
Local parent Vanessa Kirkpatrick said she was not interested in long day care for her child.
"I'm happy with the current preschools in our area and I don't want them to cut back on their places or close. I know a lot of other parents up here feel the same way."
The loss of recreational space was also seen as an issue. The bowling green site is currently zoned recreation and is within the sporting precinct which includes Blackheath Oval, the fitness centre, basketball and tennis courts and cricket nets.
"The site should remain as a recreational facility as intended by the zoning," Ms Ridley said.
Submissions on the DA closed last week. Council will consider the application in coming weeks.
