The girl, now 21, was allegedly tied up, locked in a room, without a door handle and repeatedly raped.
The 45-year-old father took her to hospital for the births then forced her to leave the children, now aged three and 20 months, and return to her dungeon, police said.
The daughter also said that he had forced her to give her children up for adoption.
She escaped the home in the village of Grodzisk, east Poland, last week and went to police with her mother, who is also being questioned.
A police spokesman said: "The picture the girl painted was really horrific."
Her father was apprehended at a train station on his way to Italy.
He denies rape charges but refuses to talk to police. A judge has ordered an investigation while the man is held in prison for three months.
Meantime, Josef Fritzl, awaiting trial, faces a string of charges including manslaughter, up to 3,000 counts of rape, abuse and incest.
He may also be charged with slavery, it is said.
Prosecutors' spokesman Gerhard Sedlacek, quoted by the Austrian ORF news website, said nobody had been prosecuted for the crime of slavery yet under Austrian law.
Sedlacek said formal charges against Fritzl should be ready by the end of September and he may go on trial later this year.
The 73-year-old Fritzl is being held in pre-trial detention in St Poelten, 80km (50 miles) west of the capital, Vienna. Police found a sophisticated secret dungeon at his home in the quiet town of Amstetten in April.
Prosecutors are still trying to determine how one of the seven babies Elisabeth was forced to bear by her father had died.
Fritzl confessed to incinerating the body of the dead child, officials say. He might face a murder charge for the baby's death.
Three of Elisabeth's surviving children were confined to the cellar and three were raised above ground, officials say.
DNA tests have shown he is the father of all six.
The case first came to light in April after 19-year-old Kerstin, one of the children fathered by Fritzl, became seriously ill and was taken to hospital.