The bus was carrying about 60 children, aged between four and six, from a nursery school when it was hit by a train near Manfalut, 230 miles south of Cairo.
It collided with the train as it drove through a railway crossing near Manfalut, a village near Assiut. All but two of the dead were children. A woman and the bus driver also died.
The Egyptian transport minister Mohamed Rashad has resigned, according to state media.
Officials said a crossing guard, who was allegedly asleep at the time of the collision, has been arrested.
Yahya Keshk, the governor of Assuit, said the railway crossing had been open at the time of the collision.
"The crossing worker was asleep. He has been detained," he said.
Reports from other witnesses said the barriers of the crossing were open when the bus approached.
Mohamed Samir, a doctor at a hospital where injured survivors were taken, said: "They told us the barriers were open when the bus crossed the tracks and the train collided with it."
Samir said the bodies of many of those killed were severely mutilated, illustrating the force of the crash.
Witness Ahmed Youssef said he saw the train push the bus along the tracks for nearly half a mile.
The bus was broken in half by the force of the collision.
Books, school bags and socks were strewn along the tracks near the mangled bus. Parents of the missing wailed as they looked for signs of their children.
Hospital officials said the wounded were being treated in two different facilities, many with severed limbs.
Egyptian state television reported that another 13 people were injured in the collision.
Keshk told state television: "The deaths have now reached 47. There are 13 children injured."
Families of the victims joined the search for survivors and bodies. Witnesses at the scene said many of the remains were unrecognisable.
One man picked up a body, screaming: "Only God can help."
Officials said the level of destruction and mutilation made it difficult to count and identify the bodies.
Victims' families protested at the scene, while officials sought to reassure them the case would be investigated. President Mohammed Mursi ordered his ministers to offer support.
Prime Minister Hisham Kandil ordered an investigation into anyone responsible for the crash, and travelled to the scene.
Egypt's roads and railways have a poor safety record and Egyptians have long complained that successive governments have failed to enforce even basic safeguards, leading to a string of deadly crashes.
An estimated 8000 people die in car accidents each year in the country.
Egypt's worst train disaster was in 2002 when a fire ripped through seven carriages of an overcrowded passenger train, killing at least 360 people.
Many more have been killed in rail accidents since then despite pledges from successive governments to improve safety.
Accidents blamed on negligence occurred regularly during the rule of Hosni Mubarak, who was ousted as president last year after a popular uprising.
This latest accident is the worst such tragedy since Mursi took power this summer.