Far from being a Hitler Sieg Heil, the gesture she was actually making was a playful royal wave.
Stills from the 17-second silent film, made in 1933, show Prince Edward, the Queen Mother, the six-year-old future Queen and her three-year-old sister, Princess Margaret, playing in the gardens at Balmoral.
An expert lip reader has examined the footage and has been able to recount the exact words used, which completely vindicate the Royals.
“This film is definitely not about Nazi salutes,” said Jessica Rees.
“The Queen Mother and Prince Edward are encouraging the children to wave – the Queen then encourages her sister, Margaret, to wave.”
On the film Princess Margaret says, “Oh la la la la la la,” as she sings and dances around.
Her mother says: “Oh look darlings, there she is!” referring to someone out of shot.
Prince Edward says: “Yes, yes, come on, come on, give her a wave.”
Princess Elizabeth shouts to Princess Margaret: “Wave! Wave! Hellooooo.”
She then says to her sister: “Now dance, dance, dance.”
Their mother adds: “Yes hello, hello.”
Prince Edward then shouts: “Heelllloooo!”
Ms Rees, who was born deaf, is Britain’s leading forensic lip reader.
Her list of clients includes the National Crime Squad, The National Criminal Intelligence Service the Metropolitan Police and the FBI.
She has spent the last six months working for both the Imperial War Museum and the National Army Museum deciphering films taken during the First and Second World Wars to see what soldiers actually said.
Her intervention comes after claims that the footage showed the Princess and her mother were making Nazi salutes.
Last night Ms Rees said: “I viewed this footage 23 times, and I am in no doubt about what they are saying to each other.