A friend wrote me a letter asking for tips on how to tell his daughter stories.
What a wonderful thing to be asked.
Wow, well, I'd say there are a few things that come to mind immediately.
One is to look for what she responds to and then milk that vein mercilessly. When Aviva was her age we also did a lot of storytelling, and she really liked slapstick (both of mine do) and was also obsessed with (and worried about) allergies and addiction (in the general sense of lack of self control, like wanting candy). So we had a long-running saga about Aviva's daughter-doll Cereina and her best friend, Elisa's daughter-doll Sophie, both of whom were black belts in karate (the kind that can fly) and Sophie was addicted to, and allergic to, Twizzlers. Thus they would fight epic, cinematic battles (diving off bridges onto zeppelins, that kind of thing), in which Cereina would try to confiscate the Twizzlers that Sophie had gotten ahold of, because they were bad for her.
That was a theme that never ran out of gas.
Second, amuse yourself too. No point telling stories dutifully. I mean, there's a balance, you don't want to be JUST amusing yourself and the kid is tolerating you. But you don't want to go totally in the other direction, or you'll quit. Tap into your inner Rocky and Bullwinkle. There can be jokes in there she'll only get in ten years (when she'll suddenly burst out laughing for no reason)
Third, don't get stressed about quality or originality. You can retell life events, movie plots, whatever, changing the details to fit the kids' preoccupations. Steal, steal, steal. Stoop to old cliches. Reprise the Hero's Journey, even if you only know it from Star Wars. Insert improbable coincidences and deus ex machina endings and bad puns (even if you have to explain them). You can have her meet fairy tale figures and travel in time to meet later and earlier versions of herself. There doesn't always need to be a narrative arc, you can just keep throwing cool crap against the wall and see what sticks. You will probably never again have such a forgiving, enthusiastic audience.
Fourth, you don't HAVE to tell stories. It's okay to say, "naw, I'm too tired now." You have to set some limits if it's going to stay fun. It will just whet her appetite for more, if you are straight and uncomplicated about it. (Though if you ALWAYS say no for a while she may get out of the habit.)