Identified only as Linda Wenzel, the 16-year-old was found in a tunnel with other women, some of whom were wearing suicide vests and had automatic weapons.
It is believed that she may have been working for Daesh’s police force in the city.
Among those detained were women from Russia, Turkey, Canada and Chechnya – all were seized during a military operation last Thursday.
Wenzel was originally from Pulsnitz, near Dresden, and fled to Syria after falling love with a Muslim man who lived there.
Her friends said before fleeing Germany she had learned Arabic and took the Koran to school. She is also believed to have been unhappy at home.
She flew from Frankfurt and entered the country via Turkey where she fell in with Daesh offshoot groups.
She told her family she was going to stay with friends, instead going to the bank to withdraw money from her parents’ account after forging a letter to pretend to be her mother.
She was then smuggled into Iraq under her new name, Mariam, and sometimes posted pictures of herself in a headscarf.
Authorities in Germany, who listed her as a potential terror suspect after her disappearance, confirmed they are examining the photos of her captured in newly liberated Mosul to determine it is actually her.
She was among 20 Islamic State followers seized after the city fell following a ten month battle which left 25,000 Jihadists dead and Iraq’s second largest city a sea of devastation.
Newspaper Die Welt, citing security sources, said the captive girl is definitely the missing schoolgirl from Germany.
‘There are new findings in the criminal investigation that are being tested,’ said chief prosecutor Lorenz Haase. ‘When she is clearly identified, the investigation will be resumed.’
Wenzel was unhappy at home and turned to Islam.
She soon began engaging with Isis followers in the Middle East in Internet chat rooms and was under the observation of German intelligence officials suspected of plotting a serious crime against the state when she fled abroad.
She was caught in a tunnel system in Mosul with other women, some of whom wore suicide vests and had automatic weapons. Media reports said they worked for the Islamic State police force in the city.