The Human Rights and Equal Opportunity Commission has found the department failed in its duty of care to her and her children and breached their rights.
Newspaper and radio reports said the Iranian woman is a member of the Sabean Mandaean pre-Christian religious minority group, which faces persecution in Iran.
HREOC has handed a preliminary report to the government slamming the department, which is already under fire over severe immigration bungles, for housing a woman from a religious minority alongside unaccompanied men from a different faith.
For months she was the only woman and non-Muslim in a block with 50 Muslims from Afghanistan and Pakistan.
The woman allegedly suffered two violent attacks at the Curtin detention centre in Western Australia, including a rape attempt in mid-2002.
It is alleged that a male detainee tried to rape her while her nine-year-old daughter looked on.
In a separate attack, a man punched her in the chest and face, tore off her clothes and broke her finger. Her daughter was also punched when she ran to her mother’s aid.
The woman reportedly complained to relatives in Sydney, and rights group Amnesty International intervened when the immigration department reportedly failed to act.
She is now on a protection visa living in the community.
“This woman was in the situation that she and her family had fled from Iran — they were fleeing from Islam, they were fleeing from persecution — and she came to Australia unlawfully and was placed in the Curtin detention centre,” Sydney Mandaean spokesman John Clugston told ABC radio.
He said she was estranged from her husband when she was placed in the compound.
A spokeswoman for the department told AFP that police investigated the sexual assault allegations however no charges were laid, however the department regrets not moving the woman into a more appropriate compound.
Australian Prime Minister John Howard last week apologised to two women at the centre of an immigration bungles scandal.
Australian resident Cornelia Rau spent 10 months behind bars after being wrongly identified as an illegal immigrant when she should have been receiving psychiatric treatment.
And Australian resident Vivian Alvarez Solon was deported to the Philippines in 2001.