How do you deal with Mother In Law who has created hell?

and single handedly tried to tear apart all her sons' marriages and is mentally insane, has made up blatant unbelievable LIES about things all daughter in law's have 'said' and has extreme control issues. I am talking- complete fabricated crazy things that are offensive that I NEVER EVER sad but she tells people I did. Can't get over the fact we didn't want her in the birthing room for the birth of our first child (doesn't understand its OUR right to dictate how OUR childbirth goes!) and no one was in the room with us anyway, of course its a deeply personal and prvate experience!! but she can't get over it. Can't accept and refuses to accept that we think they need to please ring us before they come round to see if its convenient for US (the owners of the household who need privacy) and that this rule applies to everyone and no one else has a problem but apparently its not acceptable that we ask them to. She has tried to tear our lives apart and this all started as soon as the baby was born. Up until then she was a different person she has now completely lost the plot and done such atrocious behaviour and slander towards me that my husband and now I too have decided to wipe them from our lives completely. We have given them three chances to discuss this and realise their problem and perhaps apologise or explain themselves but every time it ends with them adding MORE lies and offensive stories to the situation and refusing to apologise even though they are destroying their own relatioship with us and their precious grandson. Are we right in wiping contact with them now?? Is their anythign else we can do??? We have tried and tried, they are just crazy and we have told father in law that mother in law really DOES need professional help after the last lie she told, she is insane and out of control and very disrespectful. Father in law won't listen he is scared of her for gods sake and just goes along with whatever she says blindly... I am so hurt and devastated not just for me but for my hubby. How can two people of their age be so extremely immature and cruel?