FSIL has decided to confront Grandma in person and to make sure Grandpa is there, too. She said that she and FBIL will by no means apologize for anything unless it is to say, "I'm sorry you decided to undermine our parenting and to lie to us," but only if that comes up. FSIL also said that the Grandparents will not babysit unless supervised.
How does this sound as a starter?
"Mom, Dad, we have decided together that you will not be allowed to visit with Niece unless we're there, too. The last time you did, you not only cut her hair without our permission knowing full well we were trying to grow out her hair, but then you lied about it. We only found out because you felt guilty enough to tell Sister and she told us. We can't trust you to not do something like this again and to lie about it, too, so any time spent with Niece means we will be present, too."