The first-term MP was expelled from the parliamentary Liberal party after she took part in an anti-transgender rally in March that was gatecrashed by a group of masked men who performed Nazi salutes.
She has issued several defamation concerns notices to Mr Pesutto relating to his post-event comments, alleging he publicly accused her of being a Nazi sympathiser and used the claim to bully and threaten her with expulsion.
Mr Pesutto denies he accused the now independent MP of being a Nazi or having Nazi sympathies.
In September, a three-hour mediation session between the pair failed to reach an outcome.
Mr Pesutto denies accusing Ms Deeming of being a Nazi or having Nazi sympathies.
She had been seeking an exoneration from Mr Pesutto, her return to the Liberal party room and financial restoration.
Mrs Deeming said she made one last attempt to mediate, offering to meet with Mr Pesutto and state party president Phil Davies on Sunday afternoon.
"Unfortunately, the mediation failed," she said in a statement on Monday.
"It is therefore with great regret as a current Liberal Party member, that I am now left with no option but to lodge my defamation case against Mr Pesutto in court.
"For the sake of my family, I have to bring this matter to a conclusion as it has dominated our lives for most of this year."
Lawyers for Mrs Deeming plan to lodge the case with the Federal Court this week.
She has vowed no Liberal or taxpayer funds will be used in her legal action but has been asking for donations from the public.
Liberal MPs voted 19 to 11 to expel Ms Deeming for "bringing discredit" to the party in May after she threatened to sue Mr Pesutto.
An earlier bid to expel her, led by Mr Pesutto and supported by a 15-page dossier, failed to garner enough support.
A compromise was struck, with Mrs Deeming initially accepting a nine-month suspension and losing her role as upper-house whip.
She remains a rank-and-file member of the Victorian Liberal Party.
Mr Pesutto's office has been contacted for comment.
13°C