It sounds like a good time to mention to your mil that you would appreciate DD to be treated with respect. She doesn't enjoy having someone laugh at her when she speaks. And you don't want to have your daughter grow uncomfortable with grandma treating her like a joke. I'd make steps to ensure your daughter is treated with respect.
-DD says something, Mil laughs, you say "Mil, we are teaching dd that she will be treated with respect when she talks to us. It makes us feel awkward to hear you laugh every time she says something. We would love to see you converse with her instead of laughing at her. Chatting with her will help her language skills and teach her that you do respect her."
-Mil can't stop laughing, physically remove DD from the room and make sure she understands that Grandma is not being respectful. But that you will make sure she is treated properly.
-Mil still can't control herself, end the visit and leave. She's acting like a toddler herself with her open amusement. That's something two year olds may do, adults control themselves and are responsible for their actions.