The full back, capped 73 times by Australia, was found guilty of a code of conduct breach and stripped of his contract for an April Instagram post that said "hell awaits" gay people.
The 30-year-old, a devout Christian, also lost sponsorship deals with car manufacturer Land Rover and sportswear brand Asics.
"I have commenced court proceedings against Rugby Australia and the NSW Waratahs," Folau wrote in an Instagram post Wednesday.
"I was hoping to resolve this matter before the Fair Work Commission, but unfortunately, we were unable to do so.
"I have been blessed to have received the support of so many of you over my journey, and I want to thank you for every thought and prayer. It has meant so much to Maria and me and gives us strength for the road ahead. God bless!"
Rugby Australia did not wish to comment on the latest development in the case.
In the homophobic post, which has still not been deleted, Folau listed "drunks, homosexuals, adulterers, liars, fornicators, thieves, atheists and idolaters," underneath which was written "Hell awaits you."
Folau's lawyers, citing section 772 of the Fair Work Act, said it was "unlawful to terminate employment on the basis of religion" and are reportedly seeking AUS$10 million ($7 million) in damages.
He initially published a GoFundMe page and a YouTube video asking members of the public to donate money as a contribution towards his legal battle.
After raising $750,000, the host site took down the donations page -- citing discrimination -- before refunding all the money.
The site had been heavily criticized, with Folau's former Australia teammate Drew Mitchell accusing him of "greed," suggesting such pages should be used for more charitable causes.
Folau's 30-year-old's contract had lasted until 2022 and