Super Rugby's record try-scorer, who was on a Aus$1 million-a-year (US$690,000), four-year contract, was fired in May for posting online that "hell awaits" gay people and others he considers sinners.
The devout Christian opted not to appeal and mediation attempts failed, prompting Folau to take the highly divisive case, which has drawn support from conservatives and outrage elsewhere, to the courts.
"A conciliation before the Fair Work Commission did not resolve the matters between us. Accordingly, I am commencing court proceedings against Rugby Australia and the NSW Waratahs," he said in a video message.
Folau, who has played 73 times for the Wallabies, raised more than Aus$2 million in just two days through the Australian Christian Lobby to help pay his legal fees, before the appeal was paused, with enough money "for now".
It replaced a GoFundMe crowdfunding campaign that was shut down after raising more than Aus$700,000, with the platform saying it would not "tolerate the promotion of discrimination or exclusion".
The Australian newspaper said Folau's eight-page claim, lodged with the Federal Circuit Court in Melbourne this week, argued he was unlawfully dismissed under a section of Australia's Fair Work Act that disallowed sackings because of a person's religion.
It said the 30-year-old was seeking compensation, interest, damages, injunctive relief and penalties that could run to hundreds of thousands of dollars, along with an apology and full reinstatement.
Previous reports put the compensation figure at Aus$10 million, including for lost sponsorship and marketing opportunities, a sum that could prove disastrous for Rugby Australia.
The governing body had no immediate comment Thursday, but has insisted Folau's firing was purely contractual, saying he had agreed not to disparage anyone over their sexual orientation following a similar controversy last year.
"I have been blessed to have received the support of tens of thousands of Australians throughout my journey, and I want to say thank you to everyone who has offered their prayers and support," Folau added in his video message.
"It has meant so much to (wife) Maria and me over the last few months and gives us strength for the road ahead."