Grrrr how annoying. And as one poster said, she won’t have a clue what’s she’s done as she’s in the other camp.
And if you mention any of the points above (bedrooms, kids being tired etc.) you’ll look petty.
The two nights thing is a good idea (although not sure how practical it is getting an American down to Devon or back on their own...). As long as you stress how much you enjoy the usual dynamics of the holiday then you’ll get your point across without offending - fingers crossed!
Good luck!

Thanks everyone for your replies. I think the couple of nights idea might be the best option. I'm not good at speaking my mind. The bedroom thing was addressed by my friend when she asked the question.

Although there isn't room for her on paper there is room if the kids share and although I think this will be a disaster if we do it for a week (super tired kids) I'm sure that a couple of nights would be fun for them and a plus for my friend. 

Wish I could just say no really!

Thanks again, really appreciate everyone taking the time to help.

If the person from the USA really is an "an old family friend" visiting, then it may be completely unrealistic to expect your friend to just say to someone who has come across the Atlantic "see you in a week, hope you can take care of yourself".  Would you do that to a friend of yours?  So the options are probably say yes, or go to Devon on your own.  Just don't fall out with your own friend.

Could you not say no on the basis that there wouldn't be room or a bedroom for them?

I'm so with you. The world seems to divide into people who think it's acceptable to invite a random friend along on holiday with other people, and those who don't. Unfortunately you and your friend are on either side of the divide. Why don't you find out a bit more about the friend? If they're a chatty and interesting person then they may be fine but if you end up having to make polite and stilted conversation with them when you'd rather just chill with your mates then I think you have a right to know in advance. You and I think - why would anyone ever suggest this? She will think - I can't believe you won't let my friend come. Our best friends have a really annoying habit of doing this. We've never said anything but each time they do it it rankles. If you're not happy I think you have a right to say no. Just phrase it carefully if you value your friendship.

Is there an option for the friend to tag along for just a couple of days?

alternatively - it may add another pleasing dynamic to the group- new conversations - turn it around - if it was your family friend visiting ( would you want them to come along too?) Either way - if you are not happy - be honest and tell your friend 
Hope you have a happy holiday whichever way it goes 

I think that i would be totally upfront and honest and say that unless it will cause her a huge issue you would really prefer it if you kept to just the two families.

Its not just a meal out it is your holiday and I think its ok to want to leave it how it was arranged.

I have a regular week away in Devon booked in a couple of months time with a friend and our respective families. However yesterday she emailed to ask if it would be ok if an old family friend, who will  be visiting from the States, tags along too.

I don't know this friend, and don't want to be mean and say no, but I really enjoy these breaks as we all get along so well and this just feels like it could ruin it all.

How do I say no or broach the subject of saying no?