Things are getting real. Advice?

A doctor cannot literally take away the keys, but he can send notice to the DMV that because of a diagnosis a Dementia Mom should no longer be able to drive. Really, do you want her to kill someone?

My GFs father actually did lose his keys and licence and the pants they were in. Her Mom looked everywhere but couldn't find them. He suffered from ALZ. Her Mom told him he couldn't drive without his license. He agreed and let her drive. Yes, his stuff was found under the mattress on his bed. By that time he never questioned about driving.

I have a different perspective on elders ceasing driving:  find a replacement for GM's solo trips FIRST, before you raise the issue of cessation of her driving.

I can't imagine very many things equal to compromising someone's mobility, and arranging to have her license suspended.   Use the Indiana Jones trick:  find a replacement first.

You and other close relatives (I'm assuming from your post that your aunt is also close) can discuss it privately and work out who will take Grandma to different appointments.   Even if you're not interested in staying with her, you or the driver can shop or find something safe to do.  Sometimes I'd visit the local library.  Even in a pandemic, there are still places that aren't really close to others once you're inside the library.

Then after Grandma has finished her trips, take her someplace special.  If we weren't in a pandemic, I'd suggest a restaurant.   But perhaps you could pre-order then just stop by to pick up the meal, take it home, and let Grandma tell you about her day.

We live in a county with a lot of lakes, so I would take Dad for a drive by the ones which had large numbers of swans, and we'd watch them for a while before getting our DairyQueen or going out to dinner (this was before the pandemic.)

You can also buy flowers and give them to her.   If you (a) make her feel special  and (b) pre-plan so she doesn't panic and feel as though she has no transportation for necessary or social occasions, she won't panic as much, or she might find that she enjoys having a chauffeur.

"Lose" the car keys, it's just that simple. If grandma manages to find them, remove the spark plugs from the car or disable it in some other way. Jumping through all the 'legal' hoops to get her license suspended or revoked doesn't always work, first of all, and second of all, it gives her way too much time to keep getting lost or worse yet, kill herself or OTHERS by getting into a crash. I'd rather see her 'humiliated' than dead or causing others to die. If need be, have her car hauled off or sold so it's out of sight. Offer to drive her around or order her an Uber, whatever she needs to make life bearable, but under no circumstances should she be driving. If she herself does not realize this, that is your first and biggest sign of dementia. When my father had 3 small fender benders back to back, he called me and said "I can't drive anymore" and for that I was immediately relieved. He KNEW he was having some kind of issue (that wasn't dementia), so he was wise enough to give up the keys. Your grandmother does not have the presence of mind to realize that getting lost for 10 hours is a dangerous thing, so there you have it.

Needless to say, her phone should be answered when it rings. Like BurntCaregiver said, allowing a demented elder to call the shots anymore is totally illogical.

Wishing you the best of luck with a difficult situation. I hate dementia with every ounce of my being; my mother is 95 this month with advanced dementia and falls on almost a daily basis now; that's how bad things have gotten. She simply does not remember she can't walk, so she tries to get up and falls. God help these elders and all of us who are walking this path with them.

First all of you need to take a breath then get together and have a family meeting. Your grandmother has dementia and not only can she not be allowed to call the shots anymore she cannot be allowed behind the wheel again. For any reason.
Granted everyone is going to catch a lot of hell but everyone will just have to suck it up for a while. It's going to be tough going but not forever.
Your aunt also has to stop obeying her orders at once. Aunt is a grown woman and not under strict instructions from a demented senior not in their right mind to not touch the phone. That has to stop today. For your grandmother's safety and everyone else's as well.
Your grandmother may very well be able to pass a cognition test from her doctor. Some seniors are so good at showtiming that they are able to put it over on their doctor. Your grandmother's doctor has already been given a heads up ahead of time with the police report. He can't take away her license or even suspend it temporarily. The Department of Motor Vehicles has to do that and they will. The doctor will have to send them a copy of his results along with the police report.
In the meantime, no one lets her drive. She's going to make everyone's life a living hell, but the family has to do what must be done.
Good luck and you'll see everything will work out for the best.

Your aunt (her live-in sister) and you will need to be the ones to transition her out of driving -- no doctor does this, although if he/she gives her a cognitive exam and she "fails" this report will be in her private medical records. The doctor can "admonish" her to stop driving but this has no teeth -- she can ignore it and there's no consequences.

My strong recommendation is that you end the driving stealthily so that it doesn't freak her out and cause fighting. First, go online to her state's DMV website where there should be some instructions about reporting a dangerous driver. I did this in FL and it was anonymous. The state will send her a letter requiring her to come in to get tested (eye test, and maybe a behind the wheel, but it depends on the state). NO ONE should take her to this appointment. Let her license expire. Someone will need to physically remove her car from her premises on some pretense (therapeutic fib) that it has very expensive engine problems and is in "the shop". In the meantime, make sure someone is arranging rides for her to any appointments or commitments she has (you can ask family, friends, neighbors and faith organization she attends to take up the slack for a while until she gets used to not driving).

Anywhere on this forum where someone has suddenly "taken away the keys" it is almost always a disaster (and very humiliating and shocking to the elder). I do not recommend this at at. Yes it will require some effort and coordination but will be well worth it. Make sure her family, friends, neighbors, etc. know to never lend their cars to her for any reason. For my elder aunt who became a dangerous drive I purchased gift cards to gas stations and restaurants and had her volunteer drivers take her out for lunch or dinner while out on their excursion. She really enjoyed it and she looked forward to having the rides. You won't be able to keep this up for long, but it will hopefully create a less contentious transition.

Is someone her PoA? This would be helpful to know. FYI your grandmother "forbidding" your aunt to answer the landline in her home may be paranoia that is a symptom of dementia.

What's with the aunt being forbidden to answer the phone? That's a weird thing to agree to especially if there's no one else home. You definitely need to reassess the logic and functioning of both of them. Hoping the doctor will help giving up the driving is probably just wishful thinking. Someone needs to get serious about these circumstances.