We became US Citizens in 1990. I am a dual British citizen and my wife was German until she realized the system confiscated it. We are now living in France since 2003 where we have the right to citizenship. To acquire UK citizenship requires my wife live in the country 3 years with a permananent address there. My wife would really like to reacquire her German citizenship however my question is HOW?

We might live in Germany but need to ensure that German Citizenship will be available if we make this move and under what conditions.

When you apply for a foreign (non-German) citizenship, you need to apply for a "Beibehaltungsgenehmigung" (permission to keep German citizenship), otherwise you lose it. To get it back is not easy, but theoretically possible. The main point is, that there needs to be a benefit for Germany to grant the request. See her for more information (this link is in German, but knowing German is one of the requirements anyway):
Botschaft und Konsulate der Bundesrepublik Deutschland in Kanada - Wiedereinbürgerung (WE) (http://www.canada.diplo.de/Vertretung/kanada/de/02/staatsangehoerigkeit/wiedereinbuergerung__vor__2000.html)