Mexico's top prosecutor, attorney general Jesus Murillo Karam, said police also rescued 138 adults from the Great Family group home in the city of Zamora, located in the western state of Michoacan.
The group-home residents were kept in deplorable conditions, fed rotten food and made to sleep on the floor among rats, ticks and fleas and many of them were never allowed to leave the premises.
Michoacan governor Salvador Jara said: "I'm in utter dismay because we weren't expecting the conditions we found at the group home."
Police have detained the home's owner, Rosa del Carmen Verduzco, and eight workers.
The investigation began after five parents filed complaints last year with authorities because they were not allowed to see their children at the home.