Toddlers take things literally. The same thought process that causes little ones to look outside for puppies and kittens when it's “raining cats and dogs” makes it difficult to understand a ritual as deeply symbolic as Catholic baptism, a sacrament usually administered during infancy. You know your child better than anyone, and you know that her mind works a little differently than any other toddler's; nonetheless, a few universal tips help get the conversation started.
Compare baptism with an experience your toddler understands. In particular, Catholics view baptism as a sort of second birth; while your toddler's physical birth marks her entry into this world, baptism marks her entry intro the spiritual world. State the distinction in simple terms, noting that the physical world is the world she lives, eats and breathes in every day while the spiritual world is defined by the time she shares with God, such as through daily prayer and the afterlife.
Instill your child with a basic understanding of the concept of God's grace. Keeping simple comparisons in mind, liken baptism -- the act of receiving God's grace -- to the act of receiving a gift from God. Tell your toddler that, unlike a birthday or Christmas gift, God does not give the gift of grace for any particular reason -- He simply gives the gift because He loves her. It is this gift that gives your toddler the power to begin leading a spiritual life.
Take this opportunity to start explaining simple symbols to your child -- symbolism lies at the heart of Catholic baptism, making it hard to truly explain without instilling you toddler with a basic understanding of symbols. Talk about day-to-day symbols your toddler understands. For instance, a red light doesn't make your car stop, it simply lets you know it's time to stop; a policeman's uniform doesn't magically make him a policeman, but when he puts it on, others know he's a policeman. These are symbols. Just like these symbols, baptism symbolizes your child's second birth -- this may help her understand that baptism isn't a literal birth.
Expand on these symbols, especially if your child asks about the particulars of the ritual. Let her know that the water and white clothing represent her beginning as a Catholic while the candles represent God's presence. Just as the policeman's badge shows others that he enforces the law, the act of baptism shows that your toddler has accepted God's grace.
Don't be afraid to seek a little help from your church -- some parishes offer programs that help prepare parents for the baptism of their young ones.
Ask questions at the end of your conversation, but keep the questions open-ended -- avoid simple “yes” or “no” questions. This encourages a deeper mutual understanding between you and your toddler, and may give you further insight on her own views about baptism.