I'm a US citizen and my wife has a TPS working permit. We have been married for more than 10 years and have two kids. Now I'd like her to become a permanent resident. I know I have to fill out form i-130 but she is afraid she has to leave the country.
Your wife might be able to adjust status without leaving the U.S. - if she did not enter the U.S. illegally, did not overstay her visa, and did not work without authorization before obtaining TPS. If she initially entered the U.S. without a visa, or entered with a visa and overstayed her admission, or worked without authorization before receiving TPS, you need to have an immigration attorney review her case to determine if she might qualify for cancellation of removal.
You need to review her options with an immigration attorney. Most likely if she is in Washington State she can file both the I-130 and I-485, but she should not do so without reviewing her situation.
If she last entered the US without inspection, she will need to get her immigrant visa at the US Consul abroad even if your I-130 is approved. There is a recent opinion that explains that if she is able to get advance parole and can re-enter with that, she may be able to adjust here, but she really should speak with an immigration attorney.
If she entered the US lawfully and is now married to a US citizen, she will be eligible to adjust status within the US and will not have to return to her country. Please let me know if you have any additional questions or how I can be of further assistance to you in this matter.
Since you are a US citizen, you can file the I-130 and she should file the I-485 adjustment of status to a permanent resident based upon marriage. The forms will include entries requesting the interviews take place in the USA, so she does not have to leave the country.
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