Watts said he suffocated Celeste with a blanket in the backseat as Bella watched.
He told investigators who visited him he lied about her killing the children.
"And she had said something to the effect of, 'Well, you're not gonna see the kids again.' As a outcome of that conversation, he strangled her to death", Lambert said.
Christopher Watts killed his wife Shanann and their two daughters, Bella and Celeste, in August.
"Please Daddy, don't do to me what you just did to Cece", said Bella, according to a lawyer for the family of Shanann Watts, the girls' mother.
Watts said Shanann put her hand on his leg and they had began to have sexual intercourse in the missionary position.
Bella witnessed him kill Celeste and begged for her life before her father killed her.
"Every time I think about it, I'm just like, did I know I was going to do that before I got on top of her?" he told investigators, according to the report.
"If I was thinking, this wouldn't have happened", he said.
Bella's last words and other details about the disturbing familial murders were revealed by attorney Steven Lambert on Tuesday's "Dr. Phil" show. Bella asked her father.
"Watts said he wasn't sure if he told Bella "'yes, ' like a awful person.'" He said he then suffocated the girl with the same blanket as the child fought for her life.
He said his wife never fought back or screamed, according to the report. The report states the two girls spent an hour in the auto with their mother's dead body.
He pleaded guilty to murdering all three of them in November in what some said was an effort to avoid the death penalty.
"Like, the whole - Everything that happened that morning I just don't - I don't know like. like, I try to go back in my head".
He then drove his family to the oil field and killed his daughters before stashing their bodies in an oil tank where officials later found them submerged. But he doesn't remember what he told them, according to the report.
Watts said Bella walked into the bedroom moments after he killed her mother. "Most of the time the defendant doesn't actually tell them what happened", Watts said, adding he didn't want his lawyers to work under a false pretense.
Watts initially denied involvement in the August disappearance of his wife and daughters, and even spoke with a local news station about his worry for their well-being. When he went inside, Celeste also was awake.
"Right now I'd have a five-year-old ... a three-year-old ... and more than likely, a one-month old son ... and a attractive wife ... and right now it's just me", he said.
"He reads the book to his daughters, along with some Scripture, every night", the report says.
This story originally appeared on the Herald Sun and is republished here with full permission.
He said he made a decision to plead guilty because he didn't want Shanann's family to see pictures, hear anyone talk about what they saw or hear anyone "bash" their daughter's memory. The plan also extends to supporting men who experience instances of domestic violence.
Lambert said it had been particularly hard for Shanann Watts' mother to imagine the final moments for Bella, who prosecutors said "fought back for her life".