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.

George Bender, 68, took his own life on October 14. He had spent much of the past decade locked in negotiations with CSG (Coal Seam Gas) companies who wanted to drill 18 wells on his properties.
Encroaching gas exploration across Australia has pitted miners against farmers, who fear the environmental and health impact of CSG.
Mr Bender's daughter Helen made an emotional plea on this subject on live television panel show Q&A.
"On Saturday we buried my father," Helen Bender said. "When will farmers be given the right to say no to CSG companies?"
She spoke about how the issue had disillusioned her father: "One of the last things my father said, 'No one is listening, why am I wasting my time?'" she said.
In response to her comments Australia's rural health minister said she wanted laws to allow farmers to refuse miners onto their land.
Senator Fiona Nash said the "simple answer" to the complex issue would be legislative change to empower farmers.
Helen Bender's name then began trending on social media sites, a reflection of the potency of the debate among the Australian public.
However, Federal Opposition Minister for Rural Affairs Joel Fitzgibbon who was also on the panel on the show said that  Australia had enjoyed "enormous wealth through the extraction of coal and iron ore and other commodities, and now CSG".
He added that it was a  complex policy area and that  responsibility for mining leases lies with  individual state governments.
"In my view to be honest [it] is not going to change anytime soon because the extraction of those resources is too significant to the national economy," Mr Fitzgibbon replied.
One report said that the CSG sector had seen growth in jobs, income and consumption in Queensland which is the centre of much of the industry in Australia.

RSPB Scotland is planning improvements for people and wildlife at the site on the south-eastern edge of Alloa.
The wetland and grassland is a popular site for birds including snipe, short-eared owls, teals and black-headed gulls.
New paths, viewing areas and signage are to be installed over the coming months with a series of events planned.
The wetlands near the banks of the Forth and the Black Devon river were created when soil was dug out to cap a nearby landfill area.
Managed lagoons were formed by Clackmannanshire Heritage Trust, and later expanded in the mid 2000s by the council's landfill project.
RSPB Scotland's regional director for south and west Scotland, Anne McCall, said: "We're delighted to be taking on the management of the Black Devon Wetlands and we hope to transform it into a reserve that will not only help wildlife, but also provide local people with a great nature experience right on their doorstep.
"The Inner Forth is internationally recognised as an important place for birds, and the establishment of this reserve adds to a wider mosaic of habitats that are beneficial for a whole range of different species, as part of the RSPB's landscape-scale project, the Inner Forth Futurescape."
An Australian blogger and author who faked terminal brain cancer faces legal action over her deception.
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An emotional plea by the daughter of an anti-natural gas campaigner who took his own life has re-ignited a debate about the rights of farmers.
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Scotland's newest nature reserve is to be set up at the Black Devon Wetlands in Clackmannanshire.