The grandfather, who escaped unhurt, had arrived in Australia last week, leaped into the path of the freight train at Wentworthville station on Sunday after the pram holding Erleen rolled onto the tracks.
The family were on their way to visit a Sikh temple.
The grandfather immediately jumped on to the track and passed the pram back up to his wife and daughter.
CCTV footage of the dramatic incident at Wentworthville railway station shows the girl's grandfather letting go of the pram so he could pay for tickets.
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The child's uncle Parminder Singh said he was incredibly proud of his father who only arrived in Australia last Friday.
"He's done a really great job and he didn't really think for a second about his own life at all, he just jumped out to save her. Nobody knows how that happened... But the baby is safe and sound and my father is OK, but just can't talk much," Singh was quoted as saying by the Daily Telegraph.
Sydney Trains director of operations Tony Eid said the incident was a reminder to passengers that stations could be a dangerous environment.
Unlike more modern train stations, the platforms at Wentworthville slope towards the tracks for weather reasons.
Holroyd Local Area Command acting inspector Paul Reynolds praised the actions of the grandfather.