I'm not going to let my friend know I know she's lying
Why not?
I'm actually a good friend and do not want to hurt her.
I understand you don't want to hurt her, but the truth is better. Holdings onto a lie does nothing for her and she won't have to worry about it anymore.
The truth might be better for her.
The truth is better. Trying to keep up with a lie is taxing. There is no need for that as friends should have their relationship based on the truth.