Yes. But, if you claim the dependent care credit, she will have to claim the money as income and pay social security and medicare tax (15.3%), as well as income tax.
If she babysat in your home, instead of hers, she is classified as a household employee. Grandparents (parent of the taxpayer) are exempt from the "Nanny tax". That is, she will not have to pay social security and medicare tax. But the income is still subject to some income tax.
