Mums and dads were stunned to receive a missive saying the school could only receive the treats if the parents had a food and hygiene certificate.
But now officials have realised the error of their ways and the ruling is being reviewed.
The storm in a cupcake unfolded at Gleadless Primary School in Sheffield when head teacher Valerie Fowles sent out a letter which read: "Due to new regulations we can only accept donations of homemade cakes and buns from people who have a food and hygiene certificate."
"It's been a tradition for years even when I was a kid to take homemade buns and cakes to school for Christmas and it's something that children like to do and to be involved with."
Sheffield Council education chiefs said that the guidance issued was supposed to apply to large outside contractors who sometimes cater for a major event and that they would be offering advice to the school.
A council spokesman: "It wasn't meant to refer to mums and dads volunteering to bake at home for school fairs and the like. We will be telling the school this."
Steve Clark, council service manager said: "Guidance about food hygiene was issued to let schools know about best practice when holding events where food is brought in.
"These type of school events vary greatly from big summer barbecues to mince pies at Christmas.
"We issued this in good faith but in the light of feedback from schools we will be reviewing the guidance and reassuring schools that it is fine for them to continue to use commonsense when inviting parents to contribute food to events."
Mrs Fowles said the advice in the letter to parents had followed the council's guidelines.
She said: "The last thing we wanted to do was to ban anyone from bringing homemade cakes to the Christmas fair so I am delighted that the local authority policy which followed is being reviewed."