I din’t able to create this in proper way like magento does but if you will have all the state of all country then I think this is the perfect solution. If you don’t have all state for all country then this module is not solved your problem. If any one knows the correct way then please add the solution via comment. I am describing here How I exactly did.

Open your form which is in Yournamespace/Modulename/Block/Adminhtml/Modulename/Edit/Tab/Form.php then add below fields

    $country = $fieldset->addField(‘country’, ‘select’, array(
                ‘name’  => ‘country’,
                ‘label’     => ‘Country’,
                ‘values’    => Mage::getModel(‘adminhtml/system_config_source_country’) ->toOptionArray(),
                ‘onchange’ => ‘getstate(this)’,
            ));
    
    $fieldset->addField(‘state’, ‘select’, array(
                ‘name’  => ‘state’,
                ‘label’     => ‘State’,
                ‘values’    => Mage::getModel(‘modulename/modulename’)
                                ->getstate(‘AU’),
            ));
    
             /*
             * Add Ajax to the Country select box html output
             */
            $country->setAfterElementHtml(“<script type=”text/javascript”>
                function getstate(selectElement){
                    var reloadurl = ‘”. $this
                     ->getUrl(‘modulename/adminhtml_modulename/state’) . “country/‘ + selectElement.value;
                    new Ajax.Request(reloadurl, {
                        method: ‘get’,
                        onLoading: function (stateform) {
                            $(‘state’).update(‘Searching…’);
                        },
                        onComplete: function(stateform) {
                            $(‘state’).update(stateform.responseText);
                        }
                    });
                }
            </script>“);

Now Create State Action in modulenamecontroller.php file which will be like this

     public function stateAction() {
            $countrycode = $this->getRequest()->getParam(‘country’);
            $state = “<option value=”>Please Select</option>”;
            if ($countrycode != ”) {
                $statearray = Mage::getModel(‘directory/region’)->getResourceCollection() ->addCountryFilter($countrycode)->load();
                foreach ($statearray as $_state) {
                    $state .= “<option value=’” . $_state->getCode() . “‘>” . $_state->getDefaultName() . “</option>”;
                }
            }
            echo $state;
        }