The New York Times reported that Prakash had been arrested in an unnamed Middle Eastern country.
The 25-year-old, who has gone by the name Abu Khaled al- Cambodi since joining ISIS in 2013, was thought to have been killed in an American air strike in Iraq in July.
Prakash, who was of Fijian and Cambodian descent, has been a prominent member of Islamic State in Iraq, and has sought to recruit Australians to carry out attacks.
"In the last few weeks, however, a Middle Eastern government arrested Mr. Prakash," another senior American military official was quoted as saying.
Prakash handed himself to Turkish authorities several weeks ago, the Australian Broadcasting Corporation said.
Australia's justice minister, Michael Keenan, declined to comment on the new report on Prakash, but conceded that the government's ability to confirm reports of deaths in Syria or Iraq was limited.
"As a matter of longstanding practice, the Australian government does not comment on matters of intelligence or law enforcement operations," Keenan said.
He said, "There have been people who have been reported dead and are later found to be alive."
Prakash entered strife-torn Syria in 2013 and has been the public face of a number of Islamic State's propaganda videos.
He grew up in Melbourne and converted to Islam in 2012. He attended the now-closed al-Furqan Islamic Centre.
In August 2015 the Australian federal police issued a first instance warrant for Prakash's arrest, which is still valid.
Prakash was believed to have had links to numerous plots in Australia, including a knife attack by an 18-year-old against two policemen in Melbourne and foiled plans to attack police both last year and this year on Anzac Day, Australia's memorial day for fallen soldiers.
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