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I hold a British passport and my wife has a non-EU passport. She holds a Biometric Residence Permit, Indefinite Leave to Remain (ILR), but it was obtained through settlement via Tier 2. Her residence permit is not via spouse of UK citizen.

We are planning to visit Portugal and Germany. We plan to travel together. Can she apply for Schengen visa as a spouse of EU citizen, or would it be better to apply for tourist visa ?

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Yes, she can apply for a visa as a family member of an EU citizen. It doesn't matter how she got her ILR/residence permit/etc, that's irrelevant for the Schengen visa rules. She is the spouse of an EU citizen, so she's eligible to apply on that basis.

As she is eligible to apply as a family member of an EU citizen, she should do so - the application process for family members of EU citizens is accelerated and free of charge.

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