The approach to Lipschitz stability for uniformly parabolic equations introduced by Imanuvilov and Yamamoto in 1998, based on Carleman estimates, seems hard to apply to the case of Grushin-type operators of interest to this paper. Indeed, such estimates are still missing for parabolic operators degenerating in the interior of the space domain. Nevertheless, we are able to prove Lipschitz stability results for inverse source problems for such operators, with locally distributed measurements in arbitrary space dimension. For this purpose, we follow a mixed strategy which combines the appraoch due to Lebeau and Robbiano, relying on Fourier decomposition, with Carleman inequalities for heat equations with nonsmooth coefficients (solved by the Fourier modes). As a corollary, we obtain a direct proof of the observability of multidimensional Grushin-type parabolic equations, with locally distributed observations, which is equivalent to null controllability with locally distributed controls.