Gilbert police say 58-year-old SanJuanita Carbajal was arrested Wednesday on suspicion of child abuse.
Authorities say Carbajal has limited custody of her granddaughter. Her hometown wasn't immediately available.
Police suspect she gave the child several packets containing 4 grams of cocaine and told her where to put them in her father's vehicle.
Carbajal also allegedly told her granddaughter to tell people about the drugs at her elementary school and show one of the baggies to a teacher.
Authorities used a test kit to determine the substance was cocaine.
Gilbert police didn't immediately know Thursday if Carbajal has an attorney.