One of my former professors no longer works as an academic, Can I still ask her for a recommendation letter?
Yes, you can ask your former professor.  No, it's almost certainly not required that all referees be current academics.  There'd be no sensible reason for a graduate program to require that.

Your professor can use her best judgment as to whether to fill the form with her current position or something like "Professor (former)".  In the letter, she should explain what her position was at the time that she worked with you.