Investigator Rod Wheeler, who had been looking into the killing of former committee employee Seth Rich, filed the lawsuit against Fox on Tuesday.
According to the suit, Fox quoted the investigator as saying things he had never said and that the channel was willing to show President Donald Trump its story before posting it online.
In May, Fox posted a story on its website qouting Wheeler as saying that there had been contact between Rich and WikiLeaks, the organization that posted a large number of DNC emails last year.
Fox News host Sean Hannity, who has informally advised Trump, heavily promoted the story. However, Wheeler says in the suit that he never made such an statement.
He also asserts that he was told his false comments were included in the story at Trump’s request.
Meanwhile, White House press secretary Sarah Huckabee Sanders said Trump did not know there was such a false story before it was posted. Sanders added that it was "completely untrue" that the White House had any involvement in shaping it.
This is the second time in two days that Trump has been accused of attempting to push a public narrative amid an ongoing investigation into alleged Russian interference in the 2016 US election.
The Washington Post reported on Monday that Trump dictated a misleading statement in which his son said a meeting between him and a Russian lawyer was centered on adopting Russian children.
According to the post, Trump made the move while he was flying home from Germany where he attended the G20 summit on July 8.
The US intelligence community has accused Russia of running a series of high-profile cyber attacks to change the outcome of the November 8 presidential election. Russian President Vladimir Putin, however, has firmly denied the hacking allegations.