The Advertising Standards Authority said TUI needed to make it clearer that the free places were limited and not available on every holiday.
It was not sufficient, said the ASA, to refer customers to the 'A-Z' to make it clear that availability was restricted.
Its ruling followed a complaint from a customer that price panels in two holiday brochures, in June and September 2011, included price tables with FREE written under the first child price.
Small print under the tables pointed out the prices were a guide only and applied to selected departures and referred customers to the 'A-Z' at the back of the brochure, but the complainant challenged whether the ads misleadingly implied all first child places were free.
The ASA upheld the complaint, saying TUI should have made it immediately clear there were only a limited number of free child places.
TUI said it would amend its price panels to state 'Free Child Places subject to availability'.
By Linsey McNeill