The actress filed the lawsuit against American Media Inc. in federal court in Los Angeles. She said a January cover that featured the headline "Katie DRUG SHOCKER!" was false and not supported by the actual story in the magazine.
The cover featured a disheveled picture of Holmes, and the story itself claimed she was "trapped in a cycle of addictive treatments," based on interviews with former Scientology members.
"Star Magazine's malicious claims about Katie are untrue, unethical and unlawful," Holmes' attorney, Bert Fields, wrote in a statement. "Not only do they cruelly defame Katie, they play a cheap trick on the public, making ridiculously false claims on the cover unsupported by anything inside."
The complaint also states the cover story implies that Holmes is looking to split from husband Tom Cruise, which the lawsuit states is untrue.
""Of all the fabricated stories that continue to be published about me, this instance is beyond the pale," Holmes said in a statement. "The publisher knew this outrageous story was false and printed it anyway to sell magazines."
Star Magazine is standing by its story and said in a statement that it raises significant concerns about Church of Scientology practices, including the use of e-meters, devices that practitioners believe detect mental trauma.
"Star fully stands behind the editorial integrity of what we have published concerning Ms. Holmes' controversial use of the Scientology 'e-meter,"' the statement reads. "The physical effect of the e-meter on its users is a matter of significant public concern and we plan to vigorously defend the suit filed by Ms. Holmes.
"Our attorneys look forward to deposing Ms. Holmes about her experiences with Scientology and the e-meter, and expect that the case will be promptly dismissed by the court," the statement said.
Holmes, who starred in the television series "Dawson's Creek" and numerous films, is seeking more than $50 million in damages.
Her lawsuit claims the damage from the case came from the number of people who saw the cover, but probably never picked up the magazine or read the story to find out the allegations weren't about illicit drugs.
"Tens of millions of people saw the false and startling assertions of (Holmes') drug addiction on Star Magazine's cover, which was intentionally designed to deceive the public, while viciously defaming the plaintiff," the lawsuit states.
Other stars have had difficulty with cases against tabloids. In February, a federal judge dismissed claims by David Beckham against In Touch magazine over claims he cheated on his wife with a prostitute. The judge cited the magazine's First Amendment privileges, and said Beckham's attorneys hadn't proved the tabloid published the story with malice. The soccer star's attorney has vowed to appeal.