Make yourself at home
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Take a $20 bill and write down the serial number. Leave your wallet on the dresser with the $20 poking out. When it's gone give your wife the note with the serial number on it and tell her what you did and that you're now going to confront her mother. One thing. You better be right.
I agree with others, setup a camera, and film her taking the money. Also is there some way you can mark the money inconspicuously and identify it as yours? I had a friend that had the cigarettes got missing in rapid amounts from her business behind the counter and some of the cakes on display etc, she marked them and when there was a check they were found in an employees bag and they were promptly fired. I am not blind to my mother, I know what she is capable of, so when my hubby complained I took his side. Goodluck OP! Sounds like you need it, as your wife still thinks of her mum as an angel or she just doesn't want to believe it, I guarantee she knows the truth on some level and just doesn't want to admit it to herself.
hopefully it wasnt more than $20!
The problem began when you let your MIL move in with you. The fact that your wife doesn't believe you is a terrible sign. I agree that you need to get video evidence of your MIL stealing from you, and even then your wife may not accept it. If not, you may need to leave.
Cameras for proof all around the house
DIVORCE!
She's stealing it for your wife.
You deserve a wife who treats you with more respect than that, not one who is willing to take advantage of you.
CCTV system installed. Or micro cam surveillance.
Buy a new wallet and boobytrap the current one ( ink/ dye/ buzzer to scare the shit out of her/ razor blade..)
Keywords
You live with your mother-in-law? I'd rather have a nude cage match with a honey badger and a velociraptor while slathered with cow's blood than live with my mother-in-law.
Have you ever considered writing children's books?