Yes, sessions work with frames. However, in Microsoft Internet Explorer, cookies do not work in frames (Why? Beats the hell out of me). If you want it to definately work, you'll need to set the transsid on (file.php?sid=yourbiglongsessionidhere) and manually reset the frame's source.
For some more info, read through the notes in php.ini (search for 'sid', you'll find it).