Lauren Ashley Mastrosa, 34, wrote Daddy's Little Toy under the pen name Tori Woods and published it through an online pre-release in March.
The book is about an 18-year-old woman named Lucy who roleplays as a toddler with Arthur, an older man who is her father's best friend.
Mastrosa was charged after the book sparked outrage and on Tuesday was found guilty of three child abuse material charges.
"The defendant has written a book that sexually objectifies children," magistrate Bree Chisholm said.
"The reader is left with a description that creates the visual image in one's mind of an adult male engaging in sexual activity with a young child."
The 34-year-old sat with her husband in a packed courtroom at Blacktown Local Court as the magistrate read out details from the 210-page novel.
The book's cover is coloured pink pastel with the title spelled out in children's alphabet blocks, the court heard.
A myriad of trigger warnings at the beginning of the book include age gap, daddy kink, infantilisation, physical abuse, profanity, sexually explicit scenes and slut-shaming.
Lucy's genitals are described in detail, as is the sexual activity she engages in with Arthur while pretending to be a toddler.
Ms Chisholm - who sat down to read the entire book - found the female protagonist was implied to be a child despite repeated references to her being 18.
In the novel, Arthur refers to Lucy as "baby girl" or "my little girl".
The teen is also described engaging in child-like behaviour such as having tantrums, needing to be bathed, wearing nappies and playing with children's toys.
She is also described using child-like language such as "wee wee".
"Importantly, those descriptions and language are used in the portions of the book to describe a character similar to a young child when the sexual activity is occurring," Ms Chisholm said.Â
"The language is repeated again and again."
The book invited the reader to imagine the very thing that child abuse material legislation prohibited, she found.
As such, a reasonable reader would find the book undeniably offensive, the magistrate said in finding Mastrosa guilty of possessing, disseminating and producing child abuse material.
The 34-year-old did not react when the judgment was handed down but sometimes sat with her eyes closed as Ms Chisholm read out her findings.
In a pre-release, digital copies of the novel were issued to advance readers.
A Crime Stoppers complaint led police to find 16 hard copies of the book at Mastrosa's home while executing a search warrant in March.
She wore sunglasses and did not speak to reporters as she left court with her husband and lawyer on Tuesday.
She remains on bail and will be sentenced on April 28.
Lifeline 13 11 14
Kids Helpline 1800 55 1800 (for people aged 5 to 25)
1800 RESPECT (1800 737 732)
National Sexual Abuse and Redress Support Service 1800 211 028
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