This is the most unexpected incest revelation this side of Aerosmith's "Janie's Got a Gun."
It's definitely the most shocking moment in the movie. You probably weren't expecting incest to suddenly rear its ugly head out of nowhere—but when Evelyn Mulwray yells, "She's my sister and my daughter!" at Jake, we finally discover the deeply uncomfortable truth.
When she was about fourteen years old, her father raped her—and now their resulting child is a nearly adult woman. Jake feels real pity, and he tries to help her escape her father and move elsewhere with her daughter/sister.
But it doesn't work out as planned.
If you think about it, the incest reflects the same sort of crime as the water theft, except on a personal level. Robert Towne, the screenwriter, said,
"[T]he water scandal was the plot, essentially, and the subplot was the incest. That was the underbelly, and the two were intimately connected, literally and metaphorically: raping the future and raping the land." (Source).
Noah's secretly stealing water by misappropriating it and letting it run down channels and aqueducts at night. He's also misusing the nourishing power of water by hiding on his own land instead of letting it go to the people who are meant to have it.
This can be seen as a metaphor for what he's doing to his own daughter—he's abusing her and mistreating the human power to bring forth life in the same way that he's abusing and mistreating a natural resource and its ability to bring forth life.
Yeah. That Noah Cross is 100% evil.