[Fixed]-How would I create a form for a foreign key field that has a drop down menu with an 'add item' option in django?

Django implements this in terms of a “formset”. Check out this tutorial for additional information: http://whoisnicoleharris.com/2015/01/06/implementing-django-formsets.html I think the example there is fairly similar to yours.

In the Django admin interface, things are somewhat easier, and you can use an Inline.