Barbara Artis, 77, was seen leaving her Lexington Place residence in Elizabeth on Monday at 5:15 p.m.
Neighbors said they saw Artis walking with her two great-granddaughters, 2-year-old Destiny and 11 month old Lana, but hours later they still had not returned home.
Authorities put out an alert on Tuesday morning. They were located shortly before noon in Newark, four miles away.
All three underwent medical evaluations.
The circumstances of what happened were not immediately known.
The mother of the children said she had gone grocery shopping on Monday afternoon, leaving them in Artis' care. When she returned from the store, all three were gone.
According to the Elizabeth Police Department, Barbara Artis suffers from dementia.