Roona Begum, three, required emergency surgery last year after large amounts of water flooded her brain – a condition known as hydrocephalus.
The rare illness caused her head to swell and her skull to deform.
But one year on Roona is able to eat and crawl and may even start school later this year.
“The doctors said she would not live – but she has survived,” said Roona’s mother Fatima Khatun, 23.
“She is much better now. She can hold her head straight and she can move her head from side to side on her own.
“She responds to other kids and she will smile if other kids call out her name.
“I would be very happy if she could stand and talk and be like a normal child. We hope she will one day go to school.”
Roona, from Tripura, western India, is still unable to walk because of the weight of her head despite doctors reducing its circumference from 37ins to 23ins.
The youngster was treated at the Fortis Memorial Research Institute and Hospital in New Delhi after international sympathy prompted the facility to waive the huge medical bill and treat Roona for free.
Neurosurgeon Dr Sandeep Vaishya said he had been surprised by the rate of her recovery.
He said: “I see a lot of improvement, which I didn’t expect. She has started laughing, she makes a lot of sounds and she occasionally speaks a few words.
“She has gained a lot of weight and her activities have improved a lot. But whether she will be able to live a normal life, nobody can say.
“But most likely I don’t think she will be absolutely normal because with such a severe case of hydrocephalus there has to be some damage to the brain.
“But with the improvement she has shown we are hopeful she will be able to do some things.”