Lady Thatcher has publicly backed Mr Iain Duncan Smith in the Conservative leadership contest.
The shadow defence secretary would be an "infinitely better leader" than rival Mr Kenneth Clarke, Lady Thatcher said.
Baroness Margaret Thatcher
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"Victory for Europhile Mr Clarke would present Tories with the unpalatable choice of division or hypocrisy," she said in a letter to the Daily Telegraph.
"Time and again the Conservatives would be exposed as either hopelessly split or deeply cynical - either openly rebelling against their leader or going along with policies which they knew - and which others knew - to be wrong," she said.
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Lady Thatcher said: "I simply do not understand how Ken could lead today's Conservative Party to anything other than disaster. He is at odds with the majority of its members".
Europe and the single currency provide the main thrust of Lady Thatcher's attack on Mr Clarke.
"He appears to be an even keener enthusiast of the euro than is the prime minister, let alone the chancellor," the former Lady Thatcher said.
Countering claims Mr Duncan Smith lacks ministerial experience, she also criticises Mr Clarke for his role under her successor, Mr John Major.
PA