The girl was sitting in the back seat of a BMW at a property in Wyndham Vale, about 6.30am when it was stolen by two men.
A second man who fled the scene is still being hunted by police.
The girl’s distraught father hugged his child in relief on Thursday morning as police reunited them.
“I was shocked. I’m still in shock, but I’m relieved that I got my daughter back,” the girl’s father, Manik Sharma, told the ABC.
“It’s very hard for someone to go through a traumatising situation like that … [when their child] has been taken away.”
Police said the girl was clearly visible to the offenders but they still took off, driving 40-kilometre to Norlane, in Geelong.
The 18-year-old man was arrested by officers in Norlane at 1.30pm.
Victoria Police later charged him with child stealing, false imprisonment, possessing drug of dependence, theft of motor car, evading police, reckless conduct endangering life and other traffic offences.
Police were earlier led on a pursuit through Geelong, after spotting the stolen car just after 7am..
The offenders dodged traffic and ducked onto the wrong side of the Princes Highway.
Officers used tyre-deflation devices to try to puncture the car’s tyres, but the men avoided them as well.
The offenders eventually stopped the car on a median strip in the middle of Plume Street, where the two offenders got out and fled, leaving the five-year-old behind.
The child was unharmed, police said.
Around 50 police officers, plus a police helicopter and the dog squad, are still hunting for the other suspect. He was last seen leaving the scene in a white Toyota Supra.
“This is a very serious offence which could have had potentially a very serious outcome,” Superintendent Craig Gillard . Police are urging anyone with further information to contact Crime Stoppers on 1800 333 000.