Dannielynn and her father, Larry Birkhead, attended the annual Barnstable Brown Gala.
Dannielynn wore the stunning floor-length gown with a plunging neckline and crystal-embellished straps across the bodice, the same dress Anna Nicole wore to the same event in 2004.
Larry took to Instagram to share the special moment.
“Kicking off Kentucky Derby weekend with Dannielynn. First up, The Barnstable-Brown Gala. Dannielynn is wearing Anna Nicole’s dress that she wore 21 years ago to this same event.
“Life full circle. She said she chose the dress because it was her Mom’s and ‘super cool,'” he wrote on Instagram.
“Next up, the Kentucky Derby races. We are glad to spend time with my niece Chloe (pictured). I am going to try not to embarrass them with my dance moves,” he added.
“I can’t know my mum, sadly,” a teary Dannielynn told Access Hollywood. “This is one of the only reasons and ways I can.
"This is the closest I’ll ever be getting to a hug from her.”
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"It was emotional because the last time I saw that dress was on Anna," Larry told PEOPLE, who met Smith at the Barnstable Gala in 2003.
"I think she's doing a fashion experiment for herself," he said about his daughter, who turned 18 in September last year.
"Also, I think it's really meaningful for her to wear. I'm just glad she's going through and starting to wear some of [Smith's clothes] because she could literally pick out an outfit a day for the rest of her life and never wear the same thing twice with everything."
Larry also revealed to PEOPLE that he spends more than US$200,000 (AU$ 309,000) on storage bills to conserve all of Smith’s belongings for his daughter.
"[I] just hope that she would appreciate some of these things someday," he said.
"She's just now starting to get into the curiosity of some of the fashion and things in her mom's world."
“When somebody passes away, you think, 'Oh, I'm not getting rid of anything. And then you go through the emotions of, okay, do I really want this? Do I really need this? ... and you think, 'Well, if there's just one thing in there that she can connect with, that gives her a sense of who her mom was. So it was really special that she picked out the dress to wear."
The father-daughter duo have attended the Kentucky Derby together ever since she was three years old.
The tradition began because a babysitter had cancelled last minute the first year that he brought her to the Derby.
"And then everybody was like, 'Oh, how cute. And then I thought, 'Well, she wasn't that much trouble last year. So it became a tradition. Then people started looking for us, and then the outfits had to be bigger."
