Speaking to Grisly about Vanra's disappearance, she claims that Lora has gone mad and is dangerous, threatening her customers. She states that Vanra isn't real, and is a delusion that Lora cooked up. Believing Lora to be a threat, she intends to put a hit out on her, and offers 3000 gold to the party if they are willing to take her out. If, after being given Grisly's offer, the party chooses "Absolutely not - I refuse to do your dirty work." then "Grisly" drops the act and reveals herself to be Auntie Ethel, a hag.Grisly's true identity can also be exposed by finding a note in the Blushing Mermaid which contains a report on Old Garlow's, using terms like "Auntie." The note is inside a rosewood desk in the same room as Grisly (X:-123, Y:-93). Afterwards, the party can confront Grisly on the note they found and she instantly drops the act.
If you did not learn that Auntie Ethel was a hag in the first act, there will not be a note in the desk, and Captain Grisly will be the real Captain Grisly.