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I think it works pretty well, but these are the reasons I'd suspect people don't think it's "princessy":
It's one syllable and very common, unlike frilly and rare princessy names like Alessandra, Melisande, Larissa, Iliana, Anastasia, etc.
As a middle name, it's a very common filler. If I met a princess named Grace, I'd assume it was short for Graciela or something longer, and I'd also assume that a princess would have a long and frilly middle name, possibly more than one.
Overall I think Grace is simple and pretty, but it's so short and commonplace that most people wouldn't expect it to be found on a princess.
As a first name, it would run into the "Your grace" problem (but isn't "your grace" for a duke, and "your highness" for a princess?) and as a middle name it would run into the "common filler" problem. If I were you I'd find a long frilly name that can have "Grace" as a nickname, and then call her Grace in the story but make occasional references to the fact that her full name is a longer, more frilly name (even if it's hardly ever used).