I took my 3 year old grandson to Blue Lagoon in January. It was absolutely the highlight of our trip. He really enjoyed his time in the water with the dolphins. I had to hold him the entire time, but they were really good about making sure that both of us got the chance to do each interaction with the dolphins.
They do allow for 'observers' so if the other grandparents did not want to actually interact with the dolphins, they would not need to pay for that. But they do require an adult for each child. So someone would need to go with the children during the interaction time.
We also enjoyed the beach after our time with dolphins was completed. You can also walk around and see all the dolphins and other sealife that they have on site. They currently have a baby dolphin (was 8 wks old at the time of our visit).
I don't think you will be disappointed in this excursion. My grandson keeps asking to go back :)