Give her gifts, talk to her, and use flirt expressions Heroic pose, flirt, exc. Until the lock-on around her turns green. That means that she's ready for "fun". Hit A while facing her and select "yes". Have fun! Lady Gray will only have sex with you on the rare occasions that she's inside the mansion.
How do you have sex with your wife? - Fable: The Lost Chapters Questions
The screen would fade to black and you would hear generic grunting and moaning sounds. Afterwards, you would end up standing where you were beforehand, and your spouse would say something about you. If you decide to give the Bordello rights to Madame Minzche and the other women then the Bordello becomes a Refuge for Women home and you can no longer have sex with the prostitutes. You also cannot have children. In Fable II you can now choose to have protected with the use of a condom or unprotected sex.