THE babysitter of Myrtleford toddler Daniel Thomas claimed his mother was trying to set her up for murder, an inquest has heard.

Mandy Martyn told police in early 2004, via a handwritten note, that Daniel's mother Donna Thomas was the one who regularly abused the two-year-old boy by hitting, gagging and tying him up, and called him "bastard" or "mongrel dog".

Wangaratta Coroner's Court heard this morning that Ms Martyn had her solicitor fax the note to homicide squad detectives, which declared in large-scale letters: "I did not kill Daniel."

Ms Martyn declined to be formally interviewed by police after it was received.

Ms Martyn reported Daniel missing on October 17, 2003. His remains were found five years later after a dog dragged his bones from under a house where Ms Thomas lived before moving in with Ms Martyn.

Detective Sgt Russell Sheather told the court the note from Ms Martyn described Ms Thomas trying to strangle Daniel on his bed, on the night of October 14 - four days before he was reported missing.

Ms Martyn said Ms Thomas was screaming: "I hate you, you little bastard, my life would be so much better without you. I wish you would die, just die you dog."

She said the next morning she realised after Ms Thomas had left the house - to attend a parenting course in Shepparton - that Daniel was gone and  "denial and shock kicked in".

She told police that when Ms Thomas rang from Shepparton to ask how Daniel was, "I knew she was trying to set me up".

She said she had gone into autopilot and "self- preservation mode" and not told police at first because she could not remember what had happened, but that now it was coming back to her.

She claimed she had seen Ms Thomas repeatedly abuse Daniel during the seven weeks they had stayed with her, including trying to drown him in the bath.

But in a police interview from February 2004 played to the court, Ms Thomas said Ms Martyn was the one who tried to drown Daniel on October 14.

"Thinking about it now, I think he was close to dead," she said.

She denied trying to strangle him.

The court was told yesterday that in an interview five days after his disappearance, Ms Thomas said she had seen her son lying motionless on the bedroom floor surrounded by bloody towels after hearing a "thump", on the night of October 13.

Today, in the second interview, she said this incident and the attempted drowning must have happened on the same night.

She admitted that she had on occasion smacked Daniel and helped Ms Martyn tie him to the bed or discipline him, because she was scared.

The inquest before Coroner Jacinta Heffey continues.