Cassandra Kennedy was 11 when she told police in Washington state that her father, Thomas Edward Kennedy, had raped her three times.
Mr Kennedy denied the allegations but was convicted by a jury and sentenced to at least 15 years in prison.
He was finally released last week after Ms Kennedy, now 23, recanted her story.
“I did a horrible thing,” Ms Kennedy told detectives.
“It’s not ok to sit and be locked in this horrible place for something you didn’t do. It’s just not right.”
She said she wanted her father to “go away” and got the idea from a friend whose stepfather was sent to prison for a child sex crime.
Mr Kennedy, 43, has told the media he does not want to speak about the issue as he is trying to get on with his life.
Local county prosecutor Sue Baur said she had never before seen a case where a child had returned to authorities to withdraw their story with enough credibility to turn the case around.
“This is something my whole office is talking about,” she said.
“This is the kind of thing that shouldn’t happen.”
Ms Kennedy has spent the past few months at a Christian addiction clinic and is currently doing missionary work in Mexico.
She will not face charges because prosecutors fear it may stop others in similar situations from coming forward.
Ms Kennedy had a troubled youth, drinking from a young age and becoming addicted to pills during high school.
Several months before accusing her father of rape, she was expelled from school because she told a teacher she was thinking about bringing a gun to school and shooting everybody.