What would you recommend to lower a female hairline from 1-2cm: forehead reduction or hair transplant?

The forehead can be reduced through a variety of different methods, and the best technique usually depends on patient preference. I perform forehead reductions through both hair transplantation (using either a strip or FUE harvest method), and through scalp advancement procedures, and both techniques have high patient satisfaction rates. It really comes down to the patient's lifestyle.
For patients who want the quickest result, scalp advancement procedures tend to be the best option, and most of my female patients choose this option. The biggest downside with this technique is the scar, which takes several months to mature, fade, and allow hair to grow through the scar, but is a quick and very popular option. Most patients are able to achieve the results they are looking for with just one surgical procedure. We are generally able to advance the hairline 2-3 cm in one session, depending on the patient's anatomy, which also dictates how much undermining of the scalp is required.
With the hair transplant option, the downside is that it takes 9-12 months for the transplanted hair to mature and start to show significant density and growth, and many patients will end up wanting to pursue a second session to achieve maximum density. The upside with the transplant sessions is there is no linear scar along the frontal hairline, and the hairline can be tailored very closely to fit a desired look (adding density into the temples, curving the hairline, etc.). 
Both are great options! Be sure to see a surgeon who specializes in facial plastic surgery and hair restoration surgery in order to review all of these options in detail. Don't be afraid to travel to get the results you are looking for.

Forehead reduction surgery or hair grafting transplant can both lower your hairline.  It would be in your interest to have a consultation with a doctor and understand your risks and benefits of each surgery.  It would not be fair to suggest one or the other option without an examination or understanding your specific goals.  There are issues of scarring, shock hair loss, hairline shape, and many other factors that must be understood.
In general, 1 to 2 cm is acceptable for hair transplant surgery.  Any greater distance may require a forehead reduction surgery.
Forehead reduction is great at instantly lowering the hairline.
Hair transplant is great at rounding the hairline and creating a brand new hairline. 

Both hair transplants and the forehead reduction procedure can be used to lower the hairline and reduce the forehead. Although I use both techniques I do prefer the forehead reduction procedure which will rapidly give the patient normal uniform hair density with total freedom of hair styling. Most people have adequate scalp laxity to lower the hairline 1.2 cm without the need for an expander. As you have suggested there is significant increased risk of temporary or permanent hair loss and scarring when the incisions are made back into the scalp. While this will provide more hairline advancement it should never be done.

There are two types of procedures for lowering a hairline. One, is a surgical excision of the upper forehead followed by the downward advancement of the hairline up to an inch from where it was prior to the surgery. To accomplish this, the entire scalp from the frontal hairline to the very back of the crown, is lifted up and pulled forward. When this is done by an experienced surgeon, the hairline can often be advanced about 2/3rd – 1 inch if there is enough looseness when this lifting process is done. This procedure is often complete in one surgical session; however, it may not address receded corners of the hairline if the corner recession is significant. A great advantage of this surgical approach is the immediate impact of the procedure on hairline location with healing usually complete in a week or so. Sometimes this procedure produces a scar in front of the hairline, and if this is this is the case, a hair transplant in front of the hairline can address the scar. If there is corner rounding or if you are a male, a hair transplant lowering surgery is better because of the risk of recession in men with genetic balding. Recession will reveal the scar from a hair line advancement surgery. The only disadvantage to this is that it takes 6-8 months to fully grow out. For men, a hair transplant is a better procedure because of the risk of hair loss is high and hairline recession will show the scar from a hairline advancement surgery. Although this does happen in women, it is less frequent

The second type of hairline lower procedure is done through hair transplantation. The number of sessions varies by the thickness of the hair. For women with other than fine hair, they might do this in a single session. With finer hair, it often takes two sessions. The time to see the impact of a hairline lowering hair transplant procedure is 7-8 months and if a second session is required, it will take another 7-8 months to wait for full growth. See web-references below for four excellent sets of photos of this process on four women. When done properly, a transition zone is created that make the frontal leading edge of the hairline soft