Kevin Clash, who provides the voice of the lovable puppet, has been accused of becoming involved with a 16 year old male seven years ago, when he was aged 45.
The accuser, now 23, has met with lawyers for the Sesame Street show and TV bosses have given the actor a leave of absence.
Clash denies allegations he had underage sex with the boy and insists the relationship was between ""two consenting adults"".
A statement from Sesame Workshop bosses, obtained by TMZ.com, reads, ""In June of this year, Sesame Workshop received a communication from a young man who alleged that he had a relationship with Kevin Clash beginning when he was 16 years old.
""This was a personal relationship, unrelated to the workplace. We took the allegation very seriously and took immediate action...
""Kevin insists that these allegations are false and defamatory and he has taken actions to protect his reputation. We have granted him a leave of absence to do so... Elmo is bigger than any one person and will continue to be an integral part of Sesame Street to engage, educate and inspire children around the world.""
Clash tells the website, ""I had a relationship with (the accuser). It was between two consenting adults and I am deeply saddened that he is trying to make it into something it was not.""