How do I go about talking to my mother in law about the situation?

If you and his mother do not get along currently and you both live with her, it will be almost impossible to have a conversation with her without first knowing what it is you and your fiance would like to discuss and come to an agreement on. The next step would be to figure out what the issues are between the two of you and attempt to come to an understanding with each other. It may be helpful to present it to her in a way where she knows the space you reserve for the talk is safe and that it is intended so that both of you (or all 3 of you if he joins) knows that nothing is meant to be malicious, rude, or disrespectful (having an objective unbiased person attend may be helpful with this part). You want to reassure her that you want to come to an understanding with her that allows the two of you to connect because her son is important to both of you. Remind her that you are not trying to replace her and reassure her that even if you were.....her son is not having it! She agreed to allow you to cohabitate with him in her home....she's open to reconciliation, especially if it strengthens the relationship between her and her son. She needs to know that it is not a competition between the two of you and he will need to lovingly let her know that he'd never choose someone over her; however he would choose to live his life...whatever that means and looks like. 

It may also be helpful to ask her what her concerns are regarding your relationship. You are not just dating, you will be married and it is going to be very beneficial that the two of you are able to clear the air before the "I do's", even if it is to just agree to disagree and respect one another. However, the most important part of this is that you and your fiance are on the same page about the goal of the discussion and whether you will both be present, and that you are ready to establish the necessary boundaries and follow-through on the stated consequences if those boundaries are violated by her.