I get that this was the first time you've been able to show your spine to your MIL, and I applaud that. Keep it up.

That having been said, you just told her that she's getting the reaction she wants. She's driving a wedge into your marriage. When she can cause a divorce, she'll get more time with your daughter during your husband's fifty percent of the time with the child. Confront her by telling her that her behavior is unacceptable and you and your child are going to take them away from her. Don't confront her by telling her she's being successful at destroying your marriage.

She's mentally ill (I'm assuming that you bring that up because you feel she's dangerously mentally ill, not that she has well-managed minor depression) and you let her watch your child anyway? I can't think of any wedding where I couldn't bring my child that would be so important that I would leave my child with a mentally-ill MIL for the weekend. Bring her to the wedding and hire a childminder to stay in your hotel room with her during the wedding.

If you feel that she's mentally ill and is a problem, you have to act that way. Saying that she's mentally ill and then leaving your child in her care for the weekend says that her mental illness isn't actually a problem in your mind.