The man is charged with two counts of sexual assault on the young girl, who is related to him, and one count of sexual touching at homes in Wollongong and Camden between May 1 and November 2 this year.

In Wollongong Local Court on Tuesday, police prosecutor Sergeant Richard Novatin said the allegations against the man, who can not be named to protect the alleged victim, were "extremely serious".

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He said the girl had written down the details of the alleged abuse immediately on November 2 and gave it to a "responsible adult" who then reported it to police.

Detectives from the State Crime Command's Child Abuse and Sex Crimes Squad started investigating on the weekend and arrested the Wollongong man about 4.45pm on Sunday.

The principal was released on strict conditional bail and he will not be allowed to enter or loiter near schools, playgrounds, childcare centres or places where children are and he is not to be in the presence of anyone under the age of 18 without a responsible adult.

The man, who has no prior convictions, will be also required to report daily to police, surrender his passport, not contact the girl or police witnesses and he is not allowed to communicate by any means with someone under 18 years of age.

A provisional apprehended violence order has been put in place to protect the child.

A representative from the school has not confirmed the man's employment status.

In court, the man's lawyer Madeleine Hughes from Marsden's Law Group in Campbelltown said the allegations would "see the end of his career".

When applying for the man's release, the lawyer said the man had "significant community ties" and was supported by family, who paid $40,000 for bail surety.

Ms Hughes said the strength of the prosecution case relied on a "single witness" and the man's "prior good character should not be overlooked".

Despite Sergeant Novatin opposing bail, Magistrate Roger Clisdell was satisfied a number of conditions together would mitigate the man's risk of reoffending and failure to appear at future court dates.

He said given the nature of the allegations were "one-on-one" a thorough investigation would be conducted causing "some delay".

The case has been adjourned until January.