"She made cheese with milk."
Translation:Elle a fait du fromage avec du lait.
The past participle of "faire" is "fait". The only time you add an "e" at the end of fait in the passé composé is if there is a feminine direct object that proceeds the verb.
Il a fait la tarte. = He made the pie.
Il l'a faite. = He made it. "It", l', being the pie (feminine) and proceeding the passé composé verbs.
Milk is not a countable noun, so you can't say with a milk, which leaves you only 2 options: with the milk, which would be avec le lait or, in this case, where it is assumed you are essentially saying with some milk. Here we use de + le = du. So, avec de le lait becomes avec du lait.