Hi, Jennifer - I'm guessing it's a version of The Two Sisters (click), but I can't find that particular version. Can you check a couple of our versions and confirm that it's the same story? If you can post what you recall of your grandmother's version, many of you will be eager to help fill in the blanks. I'm also guessing that this version (click) follows the general pattern of your song.
This thread (click) about Jean Thomas may be of interest to you, although it doesn't address the song in question. The Folkways recording (click) of your grandmother's song IS mentioned in the Traditional Ballad Index (click).
You can download the album and view the liner notes here (click) at Smithsonian Global sound.
The liner notes say:

The Squire's Daughter sung by Lula Curry, blood kin of both the Hatfields and McCoys. The ballad is also called Twa Sisters and dates back to 16th Century.
(no lyrics in the liner notes - darn.)

-Joe Offer-