After the success of "The Alphabet", one of Lynch's friends, Bushnell Keeler recommended that he check out the American Film Institute. Keeler's brother-in-law had been involved in setting up the AFI. Lynch submitted "The Alphabet" and wrote a script for a short film entitled, "The Grandmother." He sent the script and a print of "The Alphabet" to the AFI in Washington. Lynch got a call from George Stevens, Jr. and Tony Vellani at the AFI who wanted to know if Lynch could make "The Grandmother" for $5,000 (it eventually cost $7,200). Lynch agreed.
The short film combines live action, and animation again. The story revolves around a boy who grows a Grandmother to escape neglect and abuse from his parents. Silent (no dialogue) with soundtrack cues used to convey story.
The music in the film was provided by a local group known as Tractor and marked the first time Lynch would work with Alan R. Splet who was recommended to the filmmaker by the soundman on "The Alphabet". Initially, Lynch and Splet intended to use a collection of sound effects records for the film but after going through them all they found that none of them were useful. So, Lynch and Splet took 63 days to make and record their own sound effects.
After finishing "The Grandmother", Lynch took the film to be shown at the AFI in Washington, D.C. The head of the AFI at the time, George Stevens, Jr. found that after all the films had been categorized, only Lynch's defied easy categorization. Stevens and Vellani recommended that Lynch apply to the AFI's Center for Advanced Film Studies. This was a filmmaking conservatory that Vellani had recently started in Beverly Hills. Lynch and Splet both applied for scholarships and on the strength of "The Grandmother" (which won awards at film festivals in Atlanta, Belleview, and San Francisco) they were accepted into the program.