Hi April3, I have a 1.5 year-old son and 2 GSDs, so I know it can be challenging sometimes to juggle a family and pets. Was your toddler squealing and laughing while you were tossing him? I wonder if your GSD saw all of the excitement and movement and it either got her over-stimulated or activated her prey or play drive. Sounds like she tried to join the game in an inappropriate way. What was her body language like when this happened? I wonder if she was play-biting rather than being truly aggressive.
Have you done any obedience work or training with your dog? One thing you might try is the "leave it" command. This is a command that you can use to keep your dog from eating something it shouldn't, chasing cats, paying too much attention to other dogs out on a walk, ect. If you're not familiar with how to teach "leave it" I'm sure a google search would yield some good results. You start out by teaching your dog to ignore a treat, then work up to higher value items. After your dog is solid on leaving treats, you could find a toy she is crazy about, and work up to tossing it in the air, bouncing it around like the baby while teaching the dog to "leave it." When she's good at that, then maybe you could try bouncing the baby, but have someone nearby with the dog on a leash to prevent mishaps.
Also crates, fences, and baby gates are your friends. In my opinion, there's nothing wrong with putting the dog in a crate for a while if you are planning to play with the toddler in such a stimulating way. We have an ex-pen in our living room for the dog, and a play pen for the baby, and we made our spare room into a playroom that the dogs are not allowed to enter. Our house is definitely not going to appear in Better Homes and Gardens any time soon. But it preserves my sanity.
I'm just a pet owner, not an expert or a trainer. I'm sure there are many other things you could try. I'd work on your dog's obedience if you haven't done much training with her or if she needs a refresher. For now, I'd probably just crate her if I anticipated a lot of excitement. I let my dogs spend time with the baby, and I let the baby touch and pet the dogs, but I have to watch him closely to make sure he doesn't do something pesty like grabbing ears or fur. I allow pets and gentle touches only. I wouldn't isolate your dog from your baby, but I might not allow the hugging--some dogs don't like it, and your toddler would be at face level with the dog.
Welcome to the site! You'll find lots of good GSD-info here and knowledgeable people. I hope you keep us updated.