I'm shocked she even has a drivers license right now. Were the police involved?
Do what you think is best for your kids. You have to stand up for them. Their little lives really do depend on you.
Maybe you should talk to your own therapist if you are struggling with this issue about allowing your children to be in a car with her behind the wheel as it seems pretty clear cut to me. No is a complete sentence. There doesn't need to be an explanation behind it. It should be obvious why.