How to cut someone out?

I've never been in this situation before period my husband's best friend's girlfriend is a complete whack job. She's constant drama, she's always lying, and she's just generally never happy with anything in her life. I'm her only friend and I'm ready to be done with her.

She makes up the most outlandish shit, for example:

She has a high school diploma only and has worked for several doctors offices. She claims when she was working at a urology clinic that she used to get to assist on procedures.

Her mother went to the ER for a stomach bug, she claimed she had to show the ER doctor how to do a lumbar puncture because he couldn't get it.

She now works at a primary care office. She claims the doctor told her to handle urology consult because she knows more than he does.

She Claim she has had lymphoma for the last 3 years that I've known her. She refuses to get treatment because she doesn't like the way the meds make her feel. She is perfectly fine. She also has MS, lupus, kidney stones, kidney tumors, and intermittent bouts of blindness.

She starts drama with my husband's friend nearly every week. It's Almost like clockwork we can definitely predicted.My question is how do I cut her out of my life? I have no desire to be around her, I don't want to feed into her bullshit, And I just don't have the energy to deal with her. I'm not a petty bitch and won't completely ignore her but seriously what do I do since she still around with my husband's best friend?

The only problem is that she has 2 pre teen daughters who we adore. They live up the street so they spend snow days with us (I'm a teacher in their school), go camping, sleep overs. They call us aunt and uncle. I want to keep that relationship, I just cant handle their mother.