Ofsted praised the council’s work to keep children safe, its fostering and adoption services, and its work to tackle child sexual exploitation.
Shropshire Council children’s services are now rated as being in the top 30 per cent nationally. This comes after the department was rated adequate in 2012.
Only 46 councils are currently rated as ‘good’ for their children’s services, and only three have achieved the top rating of ‘outstanding’.
The service was praised for its early ages support work, and work with adoption, where post adoption support was described as "exceptional".
Inspectors said: "Children and their families benefit from an extensive range of well-coordinated, multi-agency help and support, including early help services.
"Adoption is a strength and the quality of post-adoption support is exceptional;
"There is a particular focus on early help services for children who need help and protection or are at risk of child sexual exploitation, neglect and/or domestic abuse;
"Partner agencies respond robustly to concerns where children are exposed to domestic abuse, parental substance misuse and parental mental health;
"Social workers know the children that they are working with well.
"Innovative and effective edge-of-care services help to make sure that children become looked after only when this is needed."
Some areas for improvement were identified by inspectors who said a small number of 16 and 17 year old homeless people in the last year had been placed inappropriately in bed and breakfast accommodation until more permanent arrangements could be made.
They also called for more work to be done to help care leavers, particularly those looking for work.
They also said not enough consideration was given to social deprivation, isolation in a rural community, recognition of ethnicity or the children's experiences.
Shropshire Council said it is addressing the points raised and action plans had been put in place.
Examples of the work undertaken include a drop-in centre in Shrewsbury in September for care leavers which has a specialist social work post for unaccompanied asylum seekers.
Nick Bardsley, Shropshire Council’s Cabinet member for children’s services and education, said he was proud of the work carried out by staff and that the authority is now setting its sights on achieving an outstanding rating.
He said: "This is an enormous achievement. I’m delighted and proud of what our staff do every day to protect children, often in extremely difficult circumstances.
“We can’t afford to be complacent. There are areas where things could be better. We want to be outstanding."
Karen Bradshaw, director of children’s services, said: “All of our staff care deeply about the children in our care and have been working hard for a number of years to improve our services. It’s brilliant that Ofsted has publicly acknowledged this work."
Ofsted also carried out a review of the effectiveness of the Shropshire Safeguarding Children’s Board – a multi-agency body that works to keep Shropshire’s children’s safe and rated it good.