Beant Kaur Dhillon allegedly killed the baby after her 15-year-old daughter gave birth to "prevent family shame".
The 43-year-old and her nephew Bakhshinderpal Singh Mann, 23, had discovered the teen's secret in the bathroom of their home in California.
She then drowned her grandson before the pair dug a hole in a flower bed in their back garden and called the teenager's dad, Jagsir Singh, over to the house.
The trio wrapped the tot in a rubbish bag and covered his body in salt and soil, court documents say.
All three are accused of making no attempt to report the baby's birth or death to cops and Dhillon is also said to have neglected to seek medical attention for her daughter.
The gran was arrested and charged with first-degree murder, felony assault of a child resulting in death, and felony child abuse, according to KERO.
She appeared in court on Thursday and denied all the charges, while Singh has been charged with accessory to murder and child abuse.
Mann is being hunted for his involvement in the homicide – with cops wanting to charge him with being an accessory to murder.
He removed a police GPS tracking device and hasn't been seen since, detectives say.
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