The children, two siblings both aged under 15, had last been seen close to their school outside Emmaboda in Småland, southern Sweden, on Wednesday afternoon.
Police suspect that the plan had been to drive the children to a different country, and had carried out checks on vehicles crossing the Öresund Bridge to Denmark.
“We have a feeling for what was behind [the kidnapping], but we can't make that public,” police spokesperson Robert Loeffel told TT.
Witnesses told police the children had been forced to get into a car, and a large-scale police operation got underway to find the siblings.
A widespread police search looked for the children, though police said there was no further danger to other children. Arrest warrants were issued for two men aged between 30 and 40 on suspicion of kidnapping, whom police said had a connection to the siblings.
On Thursday evening, regional police found four adults with the two children in an apartment in central Malmö.
The adults were taken in for questioning under suspicion for complicity to kidnap, but they were released later in the night. Robert Loeffel was not able to say if any of the adults were still suspected of any crime.
One of the two original suspects, who is related to the children, turned himself in to a police station in southern Sweden on Thursday and was arrested. The other suspect is still at large but an arrest warrant remains in place.