Belle Gibson gained fame in Australia after she claimed to have beaten cancer using natural remedies rather than medical intervention.
She launched a successful app and cookbook, but later admitted the diagnosis was made up.
Consumer Affairs Victoria is aiming to prosecute Ms Gibson for allegedly breaking Australian consumer law.
The regulator said it had conducted an in-depth investigation of Ms Gibson's activities and had applied to Australia's Federal Court for leave to pursue legal action.
Ms Gibson's claims to have cured her cancer with Ayurvedic medicine, oxygen therapy and a gluten and refined sugar-free diet propelled her to prominence.
She capitalised on her fame with a successful app and a cookbook, both called The Whole Pantry, and promised to deliver a share of the profits to several charities.
But the money allegedly never reached the charities and cracks began to appear in Ms Gibson's story.
She later admitted to the Australian Women's Weekly magazine that none of her claims was true.
Attempting to justify her behaviour, she told the magazine: "If I don't have an answer, then I will sort of theorise it myself and come up with one. I think that's an easy thing to often revert to if you don't know what the answer is."
Ms Gibson's publisher, Penguin Australia, has already agreed to pay A$30,000 ($22,200; Â£15,300) to the Victorian Consumer Law Fund as a penalty for releasing The Whole Pantry, which was not fact checked.
An Australian blogger and author who faked terminal brain cancer faces legal action over her deception.