The Via Rail station is in downtown Montreal and you could book your ticket there. I agree that downtown is the best place to stay but I have no knowledge of what hotel is best. I would estimate 2.5 hours to drive to Quebec City ( Note: Quebec is the province and Quebec City is the town )

You can get full information about rail travel from the Via Rail website:
http://www.viarail.ca/en_index.html

You can book and buy your tickets online. If you buy three days in advance, there is a substantial discount.

To take advantage of a day trip from Montreal to Ottawa by train, you really need to leave on the early train (0640). Otherwise you won't get in until just before noon and will have to take the return train at 6pm.

There's enough to see and do in Ottawa that you might want to consider an overnight trip.

If you don't think you'll need a car in Quebec City, you can also take the train there from Montreal.

For hotels in Montreal, a central location near the Metro is best. I imagine that with three children you would want a pool as well. The Fairmont Queen Elizabeth is one of the top hotels in town and is built over the Central Station (Via Rail) and Metro. You might also consider the Delta Montreal on President-Kennedy and the Holiday Inn Montreal-Midtown on Sherbrooke. There are some nice hotels in Old Montreal, but they tend to be boutique hotels and none are a close walk to the Metro.

Thank you almcd, I meant to say Quebec city. I have to remember to say it correctly. I am glad to hear it's 2.5 hours because I had heard it was 5 hrs.

Laverendrye, thank you for the website link you sent me. I will check it out. The sooner I have it all squared away, the more I can sit back as we approach the date.
I am really glad you mentioned the early train although with 3 kids, I hope I don't miss it.
If I leave before noon and get back at 6pm, what would you say we should are places we cannot miss? I will consider the overnight stay.

About a rental car in Quebec, I wanted to visit the east side where there are mountains so I thought I would need it for sure.

I just found out that for every adult ticket, the child rides free. This is for the summer only. You have to make sure you book it a certain way so it comes out free. Just thought you should know in case you want to share it with someone else.
Also, the summer festivals are on the dates I am traveling. July 9-19 (Quebec City).

lalita: If you take the 10am train from Montreal, you will arrive at noon. The 5.55pm train will get you back to Montreal just before 8pm.

That would give you about 5 hours in Ottawa for sightseeing. If that's the case, I would go to Parliament Hill first, and take a tour of the Parliament Buildings. Then cross the bridge to Hull and visit the Canadian Museum of Civilization, which includes the Children's Museum. That would be the maximum you could do in the time available.

If you take the earlier train, you could be there in time for the Changing of the Guard on Parliament Hill, and would have time for another activity such as visiting the Byward market, taking a double-decker bus tour, or taking a tour on the Rideau Canal.

An overnight would, of course, give you more flexibility and allow you to take in an evening activity such as the Sound and Light show on the Hill.