The council is seeking an injunction to stop the channel screening sections of the film, Staying Lost, made in Nottingham last year, and to stop the production company responsible, October Films, contacting the children it filmed. The council also wants October Films to hand over or destroy its footage of the children.
Channel 4 denies any scenes in the film have been faked and says it will stand by the programme-makers and defend them in court.
The legal action follows a series of scandals last year when television producers were caught faking documentary scenes. Carlton Television was fined pounds 2m in December because a producer faked parts of its programme, The Connection.
Nottingham Council first complained about October Films in August when it claimed it had close-circuit camera footage of the film makers giving children blankets so they could pretend to be begging in the city centre. The council also claimed a 15-year-old girl had been told she would be "working" for the film crew for a year, and that they induced her to pose as a prostitute.
"If October Films will not be persuaded through dialogue that they are interfering with and undermining our efforts to care for and bring up vulnerable children, then we have no choice but to seek the support of the court to force them to cease their activities in Nottingham," said Graham Chapman, the leader of Nottingham City Council, yesterday.
The action was backed by Nottinghamshire Police. Deputy Chief Constable Tom Williamson said: "We received a number of reports into the activities of October Films which have caused us a great deal of concern. This would suggest that they had stepped outside their own stated aims and are not just filming what is occurring but interfering in the care of young people."
Channel 4 has accused Nottingham council of a "crude attempt to stop us showing an important film".
It said: "The public have the right to see this series. Channel 4 will defend robustly any proceedings issued by the council in court."
The film is being made by Tom Roberts, the highly respected producer who won a Royal Television Society award for the Dispatches programme "Mother Russia's Children".Reuse content