Sara Trumble, 26, said Mills was a rude, angry and dishonest woman who forced her to lie to McCartney.
But Mills said on Tuesday she treated Trumble like a daughter, showering her with gifts and foreign travel.
It was the second day the case was heard at an employment tribunal in the town of Ashford, in southern England, where Trumble is suing Mills for allegedly stripping her of her child-care duties after she gave birth to her own baby girl.
Trumble worked for McCartney and Mills, looking after their young daughter Beatrice, but she claims her relationship with Mills began to deteriorate after her split from the ex-Beatle. Trumble says she was progressively moved out of her job as a nanny, and that Mills refused to show her any flexibility once she became pregnant with her own child.
The former nanny also claimed that the 42-year-old Dancing With The Stars contestant became increasingly bad-tempered after the separation.
"I wasn't the only person who felt that at that time," Trumble said. "It's just that nobody else will stand up. I decided to take action and fight this for myself."
Mills said the charge that she refused to make allowances for her nanny's child was insulting, and both agreed that they had once been close.
In previous testimony, Trumble said she provided Mills with "comfort and support" after her split with McCartney. Taking the stand on Tuesday, Mills said she was the one who gave her nanny a shoulder to cry on.
"I treated Sara like my daughter as she often complained that her mother was cold and distant to her," Mills said. "I spent much of my time consoling her, especially when she said she was having problems with her partner."
Trumble accuses Mills of reducing her to tears after calling her back into work while she was still on maternity leave, and humiliating her when she reassigned her to work as a cleaner following the hiring of a new nanny.
Mills herself briefly broke into tears as she described the support she said she'd given her employee.
Describing herself as "overly helpful Heather," Mills said she hired Trumble as a way "to help her better herself, as I thought she had huge potential." She added that Trumble was "more of a baby sitter" than a qualified nanny.
She also catalogued the gifts she gave her employee, including 1,500 pounds ($2,260) when her money was stolen, 500 pounds ($755) for the deposit on a new apartment, and a convertible for loyal service. The nanny went with Mills to celebrate her birthday in Slovenia and was invited to Richard Branson's private Caribbean island, Necker.
Mills said the two got along so well Trumble even asked her to serve as her child's godmother.
Trumble acknowledged receiving the gifts - as well as a 10,000 pound ($15,000) pay off from McCartney when she resigned in 2008.
