Gisela Seewald, 75, is said to have told a judge that she gave them electroshock treatment and sedatives.
She was ordered to do so by the group's ex-leader, Paul Schaefer, who said they were possessed, she reportedly said.
Mr Schaefer is in jail charged with child abuse and aiding secret police during the 1973-1990 military regime.
A former Nazi and Baptist preacher, he established the 13,000-hectare (32,000-acre) colony in southern Chile in 1961, after fleeing Germany to escape child abuse charges.
It is alleged that the treatments were applied to teenagers who disobeyed adults or showed interest in the opposite sex.
The judge has five days to file charges against Mrs Seewald.
Mrs Seewald arrived in Colonia Dignidad in 1963, two years after Mr Schaefer and her husband, Dr Gerd Seewald.
She was head of the commune's hospital between 1975 and 1978.
Mr and Mrs Seewald still live in the enclave, now known as Villa Baviera, which was taken over by the Chilean authorities earlier this year.
As well as abuses against the commune's residents - most of whom are believed to have been held there against their will - the judge is investigating the possibility that arms trafficking and human rights abuses took place under Mr Schaefer's leadership.