To all of the people who say that this laughter is how MIL expresses her joy, and you should do and say nothing to micromanage how she interacts with your daughter, I offer the following anecdote:
When we used to Skype with MIL on a regular basis, we didn't say anything to her about how she interacted with Mathprime while on Skype, despite the fact that we could tell that something was up, and he often wasn't interested in chatting with her. Eventually, Mathprime randomly told me one day, "Meemaw frowns." In fact, for a little while, he referred to her as Meemawfrowns. We trained him out of that, thankfully, but my husband had to speak to her privately and tell her not to frown at Mathprime when talking to him on Skype. She did improve, although it certainly wasn't perfect, but by that point, the damage was done.
When we went to a family event this year (more than a year after my husband talked to her about not frowning at him, so he was about the age of the child in the OP when she was frowning at him), Mathprime was excited to see everyone else, but specifically didn't want to see Meemaw, because Meemaw frowns at him. No amount of telling him that that's just an expression she had, and she wasn't upset at him or frowning because of him would dissuade him in any way, nor did suggesting that perhaps it would be different this time.
If your goal is for your daughter to have a positive view of your MIL and a good relationship with her, I highly recommend that you address this with her. It can be very nice and positive, and you can frame it as something that you've noticed upsets her in other situations, and you'd hate for her to translate those feelings to her interactions with MIL. Regardless of what everyone else is saying about you not having said that your daughter is upset, you wouldn't have written the post if you didn't think this bothered her. At this age they get ideas in their head to which they cling like nothing else, and if one of those ideas is that MIL laughs at her rather than with her, it will be very difficult to change her feelings about MIL later.