They had a sex specialist on Oprah a few weeks back, you should relax because this is very normal. A woman had called in because she kept catching her 4 yr old daughter playing with her genitals. The specialist told her that this is very normal, she has found a part of her body that might feel good (or tickle, whatever) to touch and there is absolutely nothing wrong with that. What you DO NOT want to do is make her feel ashamed about her body or what she's doing, otherwise she will think she is being bad and she isn't, she's simply discovering. YOU are the only one of the two of you who thinks anything "sexual about this, she is only 4 and has no idea what that means.
The specialist told the mom that the only thing that needed to be said was that we only do this in private at home, not around other people, and to make sure she knows no one else is allowed to touch there, only her. It's just a phase and she will get past it until her early teenage years hit and she sort of "re-realizes" what that's there for.
I was actually telling my mother about this Oprah episode and she informed me that when I was about 4 and found out that mine had a name, I would climb up on the couch and spread my legs and announce to my family "look everyone, I have a vagina"...and mom would say "that's great honey, put it away". I have NO recollection of ever doing this, and she thinks it's hilarious, but my point is I don't remember it because she never made a big deal out of it, said it didn't last long and I was on to something else I thought was cool, vagina forgotten. Whatever you do, don't blow it out of proportion, it's not worth it and you don't want her mentally scarred thinking her body is a horror to society.