Ordnance disposal experts from the Royal Australian Air Force rushed to the Hunter Christian School even as around 450 children and 60 teachers were hurriedly taken to a nearby club.
As a precautionary measure, Newcastle Police even asked the people staying on the adjacent street to leave the area.
Before noon, ordnance experts took away the "pineapple" hand grenade that is believed to be from the time of World War II. Subsequently, the Bomb and Rescue Unit of the New South Wales Police announced that the school was safe.
About the girl who had brought the grenade, Police Inspector Gerard Lawson said that her family had received it from one of their friends many weeks ago.
"When they were given it, they were assured it was safe but we can't rely on that information. In a classroom, certainly if it was live and it was a fully functioning device it would cause serious injuries to all the occupants," the inspector noted.
Speaking to The Newcastle Herald, school principal Boyd Allen described the 11-year-old girl as "a sweet young lady from a lovely family".
The Year 5 student "understood it to be a dummy hand grenade that had been deactivated, there was no firing pin, just the body of the grenade. It was heavy, but I assume practice grenades would weigh that much too," he said.
The principal stressed that no disciplinary action will be taken against the girl. "She is bewildered, embarrassed. I tried to make her aware she is not in trouble," Allen said.
As for why he had called the police, the principal explained, "I wasn't sure if it was a dummy and I didn't want to take that chance."