The lawsuit said Allen was not contacted by the company and did not consent to the use of his image, which was taken from one of his movies.
American Apparel Inc., which is based in Los Angeles and operates worldwide, did not immediately reply to a telephone message seeking comment Monday.
The lawsuit complained of a billboard featuring a frame from "Annie Hall," a film that won Allen a best director Oscar. The image showed Allen, 72, dressed as a Hasidic Jew with a long beard and black hat and Yiddish text meaning "the holy rebbe." The words "American Apparel" also were on the billboard.
The billboard falsely implied that Allen sponsored, endorsed or was associated with American Apparel, said the lawsuit, which seeks at least $10 million in compensatory damages and unspecified punitive damages.
Allen's lawsuit describes him as among the most influential figures in the history of American film and a man who has maintained strict control over the projects with which he is associated.
The lawsuit accuses American Apparel of "blatant misappropriation and commercial use of Allen's image" and notes that the company on its Web site promotes itself as one known for "provocative photography."
In a news release two weeks ago, American Apparel Chairman Dov Charney called 2007 the company's most successful year and said the company planned to develop "into a pre-eminent global retail brand."
As of February 2007, American Apparel had more than 6,700 employees and operated 184 retail stores in 13 countries, according to its latest earnings release.