No charges had been filed against Teresa Milbrandt, 35, as of Wednesday. Her daughter, Hannah, has been taken from her and placed in the custody of relatives.
"By the time we get done, there's going to be a lot of charges here," Sgt. David Reese said.
Lt. Garry Kimpel told CBS News the woman would most likely be charged with theft and fraud as well as child endangerment.
"She admitted that the girl did not have any life-threatening disease, did not have leukemia and that the whole story was basically made up," Kimpel said.
Reese said police have collected coffee cans placed at businesses to seek donations that would supposedly go toward treatment. Police also found fliers with photos of the girl inviting people to fund-raisers, and a color TV donated as a raffle prize.
Milbrandt's husband, Robert Milbrandt, 44, is also under investigation, but no charges have been filed against him, police said.
Robert Milbrandt said he and his daughter never knew the cancer was faked. He said he took his wife to a mental hospital Tuesday.
"I don't know how you can be married to someone for so long, them lie to you and you not know," he told the Urbana Daily Citizen.
The Milbrandts' telephone number is unpublished and The Associated Press could not locate them for comment Wednesday night.
Reese said Mrs. Milbrandt allegedly researched the effects of leukemia and gave her daughter sleeping pills and shaved her head to make it appear she was receiving chemotherapy.
Reese said Mrs. Milbrandt researched a type of leukemia that could later go into remission, allowing Hannah to "recover." He said she placed a bandage on the girl's back to cover a supposed "port" where chemotherapy was administered.
"(Hannah) thought she was dying," he said. "Mom did a lot of homework. Nobody would have ever known."
Reese said the girl does have some illnesses but police have determined none are life-threatening.
Police began investigating the child's illness about a week ago when employees at the girl's school noticed that her hair was cut or shaved, not falling out. They reported the situation to the county Department of Job and Family Services, and the agency contacted police.
Investigators seized a personal computer from the Milbrandt home, and Reese said they found on it information from the Internet showing how to seek financial help from cancer organizations and a group that grants wishes to terminally ill children.
Investigators have not been able to calculate the amount of money collected or the number of fund-raisers that have been held, but at least one church gave $2,200 and two agencies gave $500 each.
Reese said people in the community were shocked to hear the woman faked her child's illness.
"I've delivered death messages that people have taken easier than some of the people are taking this," said Reese. "They're just destroyed."
The employees at the girl's school had "adopted" her as one of their own and have been "very visibly shaken," Don Hare, superintendent of Urbana City Schools, told the Springfield News Sun.
"People are just at a loss of words," Hare said. "Our teachers are very upset. There have been quite a few tears."