When the baby has grown big enough so that it's ready to be born, she comes out through the mommy's vagina; the mommy's vagina stretches to let the baby come out and then she is born. You can use an elastic or something elastic-like to demonstrate the stretching if your daughter seems to want an additional "visual aid." Always take cues from your child as to how much information she really needs at any given time. Parents tend to either postpone these discussions altogether or give far too much information, more than the child needs or can handle.
Here are some online resources: Sex Education for Preschoolers; Teaching Your Kids About Sex; and Parent's Resource Almanac on Sexuality
Good luck with your discussions.