The Hollywood star, who is dating Justin Timberlake, found herself in the tabloids this week, in photographs with another man.
Representatives for the star have stated that the allegations in The Sun are false. The paper has not released a statement.
"Cameron Diaz has today instructed her solicitors Schillings to issue and serve libel proceedings against the publishers of The Sun newspaper," a statement said.
The Diaz/Timberlake couple continues to have problems with reporters. Timberlake is currently pursuing legal actions in an unrelated case against Britain’s News of the World, which printed a story that he cheated on Diaz. His case should be heard in court next October.