She convinced the little boy himself that he had the disease, and shaved his head to make it look like he was undergoing chemotherapy, it is alleged.
The woman, who is from Berkeley, Gloucestershire, removed the hair from his eyebrows and made him wear a bandana as part of the deception, a hearing was told.
It is claimed she then pocketed cash from a carers' allowance, tax exemptions and disability benefits.
The court heard that the mother of five, aged 36, who cannot be named for legal reasons, forged medical notes from doctors for her fraudulent claims.
She is accused of preventing the boy and his younger sister from taking part in school activities as they thought they were too unwell.
Peter Ashby, for the prosecution, said the woman had allegedly been involved in fraudulent activity for more than seven years, which included a shorter period when she pretended her children were sick.
He said: 'The defendant is alleged to have used her own two children to fraudulently obtain benefits.
'She is alleged to have forged medical and school documents to indicate that two of her children were substantially ill, one with cancer.
'She allegedly shaved her son's head and eyebrows to convince people that he was undergoing chemotherapy.
'The children were not allowed to participate in normal school activities as a result and her son allegedly was led to believe that he had cancer.'
'This is clearly a serious case. It is said to be an organised and prolonged fraud. She had one of her sons believe he was suffering from cancer.
'The overall gain over the seven years was just under £100,000.'
The woman was charged with 11 counts of fraud, four counts of forgery and two counts of neglect of her son and daughter following a joint investigation by police and the Department for Work and Pensions.
The boy is now nine and the charges in his case relate to a period when he was aged between five and seven.
Her daughter is seven and was aged between three and six at the time of the charges.
The first two charges allege that between January 1, 2008, and May 26, 2010, she assaulted, ill-treated, neglected, abandoned or exposed her son and her daughter in ways that would cause suffering or injury.
The woman entered no plea at the 30-minute hearing at Gloucester Magistrates' Court and was released on unconditional bail until a hearing before the court on December 2.