The latest Department for Education statistics show that whilst 92,000 children have found free places, 38,000 eligible children are not yet claiming their entitlement.
Neil Leitch, chief executive of the Pre-School Learning Alliance, stated that many providers were still underfunded for the existing free nursery place scheme for all three- and four-year-olds, it was vital that the government makes sure this scheme for two-year-olds is adequately funded.
"This will determine the success of the initiative and the positive impact for generations to come.
"While the latest take-up figure is extremely positive, we need to ensure that there is a long term strategy of continuous support in place to ensure that all participating providers are able to offer high quality, appropriate care and education."
The average rate of funding, £5.12 per hour, is widely considered so low the work providers are asked to provide for these disadvantaged children would effectively be free-of-charge. Costs of provision are often inflated as children are younger and often highly troubled, requiring more care.
Commenting on the shortfall in take-up, the Department for Education has said the funding for the places will in future be on a "use it or lose it basis".
"The number of participating children will determine the amount of funding they get," it said.
"Where parents are not taking up these place, local authorities will get less money."
The department is due to expand the scheme to 260,000 children in England next September.
Childcare workers association Pacey, which represents many childminders, welcomed the fact that, so far, 70% of eligible families had signed up to receive the free entitlement for childcare.
However, the association was concerned that in some areas there are not have enough providers, rated good or outstanding, to provide for all the children entitled to the two-year-old offer, and the Government would have to use providers graded as requiring improvement.
Chief executive, Liz Bayram, said: "This is of even more concern given the emerging evidence that individual childminders are struggling to access funding through this scheme, as local authorities seem to show a preference for nursery settings to deliver this care, even if those settings might not be good or outstanding.
"Many families benefit from the flexible home-based service that childminders offer, so ensuring parents can make a real choice about the type of childcare that is right for them could only help increase uptake even further."