* Los estudiantes preparan una lección de español: This is the most straightforward and common translation.
* Los alumnos preparan una clase de español: This uses "alumnos" (students) which is slightly more formal than "estudiantes" in some contexts, and "clase" (class) instead of "lección" (lesson). The meaning is very similar.
* Los estudiantes se preparan para la lección de español: This translates to "The students prepare themselves for the Spanish lesson," emphasizing the students' own preparation.
The best option depends on the specific context. For most situations, Los estudiantes preparan una lección de español is perfectly suitable.