The child was shot in the head before police rescued the remaining hostages after a six-hour stand-off.
The crisis unfolded at Cambodia’s tourism hub of Siem Reap, near its famed Angkor Wat temples and home to many expatriates, and quickly drew concern from governments around the region.
The town has many establishments serving the international tourist trade, and children from at least 15 nations attend the school.
Four attackers stormed Siem Reap International School at around 9am local time (3am Irish time), grabbing the children and demanding money, weapons and a vehicle.
The men originally took about 70 people, but later released 30 of them.
They “were armed with shotguns” and had demanded money, six AK-47 assault rifles, six shotguns, grenade launchers, hand grenades and a car, said deputy military police commander Prak Chanthoeum, who said three teachers were among those seized.
Information Minister Khieu Kanharith said nearly €30,000 and a van were given to the gunmen, but they still refused to free the hostages and continued to demand guns and grenades.
Then gunshots from inside the building rang out. The hostage takers later told police they killed the three-year-old Canadian boy because he was crying too much.
Police moved in after they “threatened to kill the other children one by one,” Mr Khieu added.
Dozens of police stormed the school compound as the hostage-takers tried to flee in the van with four children but police intercepted the vehicle.
A scene of chaos ensued after the police siege.
Nearly 40 children, some as young as two, rushed past the school gate and into the arms of their panic-stricken parents - some of whom charged the hostage takers, beating three unconscious. Police shielded the fourth. All were taken into custody.
“We could barely control the angry crowd,” Mr Prak added.
Hundreds of people gathered outside the yellow school house during the tense situation, and three armoured personnel carriers were parked on the road.
The identity of the attackers was unclear, even after the stand-off ended.
Prime Minister Hun Sen said they appeared to be security guards at the school, but teachers later said they did not recognise them.
Mr Prak later said that they were villagers from the south-western province of Kandal, who had come to Siem Reap in search of work.
He added that they told police they decided to prey on foreign children because they thought their parents were rich.
“I’m very relieved,” said Singaporean Tan Seok Ho, who rushed to the school when she heard about the crisis from a friend.
Her youngest child Levon was among those taken and released unharmed. “I’m happy to have him back in my arms again.”
Denis Richer, a Frenchman who said he taught at another school in the booming tourist town, said he saw one of the attackers laying wounded on the ground after police ended the siege.
A Western resident in Siem Reap said she was told by a teacher at the school that the children, most of them aged two to six, came from Cambodia, and a number of Asian and Western countries, including Ireland, the US and Britain.
Canadian embassy officials could not immediately confirm the identity of the murdered child, but a witness who knew the boy identified him as Canadian.