Fox News host and former Miss America Gretchen Carlson filed suit on Wednesday against the company's chief executive, saying she was fired for rejecting his sexual advances.
The sexual harassment suit filed in New Jersey state court said Roger Ailes, chairman and CEO of Fox News, terminated Carlson as a retaliatory act.
Fox said that it saw the allegations in the suit and had launched an internal review.
"We take these matters seriously," Fox said in a released statement.
The media giant went on to say that it had "full confidence" in Ailes.
US media reports said that Ailes stepped up to his own defence, releasing a statement saying the accusations were false and that the suit was retaliation for not renewing Carlson's contract due to low ratings.
He called the suit "offensive" and vowed a vigorous legal defence.
Carlson, a top Fox personality, had been with the network for more than a decade.
Ailes "unlawfully retaliated against Carlson and sabotaged her career because she refused his sexual advances and complained about severe and pervasive sexual harassment," the lawsuit alleges.
According to the lawsuit, Ailes fired Carlson on June 23 after "ostracising, marginalising and shunning her" and making it clear that "these 'problems' would not have existed, and could be solved if she had a sexual relationship with him".
Fox News parent company Twentyfirst Century Fox did not immediately reply to an AFP request for comment.
Carlson, who won the Miss America pageant in 1989, joined Fox in 2005 after working at CBS News, and during her career interviewed numerous world leaders including US President Barack Obama, former US president George W Bush, and former British prime minister Tony Blair.
For over seven years she hosted the highly rated "Fox & Friends" morning news show.
The complaint, posted on the website of Carlson's attorneys, said Carlson complained about a hostile work environment at Fox as far back as 2009.
It said that when she complained to Ailes, the executive called her a "man-hater" and said she needed "to get along with the boys".
Ailes, the lawsuit said, responded by assigning Carlson to less important news and interviews and "directing that she not be showcased at all".
The lawsuit alleges that when Carlson met with Ailes last September, he suggested a sexual relationship as a way of resolving her problems.
The complaint seeks unspecified compensatory and punitive damages.
Ailes, a former consultant to Republican presidents, is a key figure in the media empire controlled by mogul Rupert Murdoch and his family.