I would admit the lie. And try to explain at least part of the reason for it, "We couldn't see her anymore, but I didn't think you were old enough to know why then." or "I was embarrassed about it." or whatever the real reason was.
If she is familiar with timeouts that's how I would explain it, "Mommy and mommy's mom were not being nice to each other, so we've been having a timeout for a while. Timeouts for adults last longer than kids'"
If she isn't familiar with timeouts or you expect the idea of children and parents not being on the same side to be too scary, I would make it a normal fact.
Plenty of people have very little contact with extended family. "Your friend Julia's grandparents live by the ocean, they only visited her when she was just born." Perhaps she has other relatives she doesn't often see, "We only saw cousin Jamie that one time at the farm, we can't always be with everyone." Or is familiar with some fictional extended family, "Splinter's mom doesn't visit the ninja turtles very often*"