The girl's grandfather found her body – with massive knife wounds to her neck – in the home near Herrstein in Rhineland-Palatinate.
He called emergency services but they could not revive the toddler and declared her dead at the scene.
Police said on Monday she died from the knife wounds to her throat. The woman was arrested on suspicion of the killing.
The mayor of the 1,000-inhabitant village of Niederwörresbach where the family lived said the locals were stunned and that “we have cancelled a fun fair that was scheduled for this weekend.”
He added that the family had not been involved in village life and was rarely seen in public.