My family is not exactly tall by any means, but my baby sister was tiny compared to the rest of us. I'm 5'3 1/2". She's 4'11 1/2". She has ALWAYS looked far younger than she really is. She's 26 now and routinely gets asked where she goes to highschool.
When she was very young, it bothered her, because everyone thought she was 2-3 years younger than she actually was. So at 6, people thought she was 4. It was hard on her.
As she got a little older, she started just shrugging it off. When people would tell her she was short, she'd respond "No, I'm not. I'm perfect", or "And look how adorable I am!", or "I know, it's wonderful, isn't it?", or even just "Yep!". These types of answers throw people, even other kids, for a loop and they tend to stop the teasing.
Build up her self esteem by letting her know that "short" is just another word, and another thing. It's like having brown eyes, or blonde hair, or freckles, or a light or dark skin tone. It's just the outward who we are. It's the inside who we are that makes people like us. Short is beautiful, just as is tall. Think how much more boring it would be if we were all the same!
Don't let her know that it upsets YOU. If YOU act like being short is nothing different than being brunette, she'll come to not be bothered by it quite so much.
Edit:
As Kristina M said, there are certainly advantages to being short. For one, people ALWAYS think you're so smart and advanced, because you look younger than you are. No one will ever expect MORE of her than she can handle, and she'll be able to surprise everyone with how smart, fast, whatever she is!