Last year, we had a similar situation with our daycare--a SAHM watching only her own child and ours. Here are some things to think about:
One thing to consider is how you will handle time off--both the mom's and yours. For example, if you want a day off, how much notice do you need to give her? If she has any paid time off of work (holidays, medical leave) will you also get paid?
You also need to think about taxes.... Does she plan to claim the daycare expenses on her taxes? If so, she will need your social security number when she files. (If you don't want to give out your social security number, see if you can get a tax i.d.) You will then have to report the income when you file. I would ask that she pay you by check or some way other than cash, so you have "proof" if you ever get audited. At the end of the year, you should double check with each other to see that you both have the same figure. You should also find out if it is likely that you will owe income tax, and if so, the best way to pay it (quarterly, etc.).
Now would also be a good time to double-check your auto and homeowner's/renter's insurance coverage. The bare minimums allowed by the state are not always adequate. I realize you are not running a full-fledged daycare, but you will have a young child in your home and car several days a week. I would see that you have adequate coverage in case the unthinkable were to happen.
Lastly, write up a contract on EVERYTHING you decide. Put it all in writing and both sign it. It seems like a formality, but it protects you both.