Yes - if she's old enough to ask, she's old enough to know. However, the truth comes with the stipulation that she not ruin Christmas for anyone else, such as her brother or friends who still believe.

My mother always said, "if you believe, Santa will come." We never wanted to find out what would happen if we didn't believe anymore, so we all played along...............

You should tell her the truth, with snm's stipulation. She'll just find out at school anyway. This way, you control the means and the context.

And she's less likely to be mad at you for lying to her than if one of her little friends tells her and adds who knows what to the story.

I figured it out about age 4. I still love the way my mother put it into perspective for me. She said "Santa has LOTS of helpers."