The lawsuit was filed in state court by Chip Thoma and first reported by TMZ.com.
Palin's attorney hadn't seen the lawsuit and didn't immediately comment.
The case dates to 2009, after Palin returned to Juneau from her failed vice presidential bid.
Thoma's attorney, James McGowan, says Thoma complained about tour bus traffic on the narrow, windy streets around the governor's mansion. McGowan says Palin twisted Thoma's actions to make it seem like he had engaged in "some unsavory and lunatic" campaign against the Palins.
The complaint is based in part on a leaked draft manuscript of a book by former Palin aide Frank Bailey.