The Tories called for her to end her lucrative international speaking commitments, accusing her of bringing the office of Prime Minister into disrepute.
Following an inquiry, state investigators in Australia concluded that the event in Melbourne had raised $Aus 192,115 (£81,500), but that only $Aus 15,800 (£6,700) found its way into cancer research.
The other $Aus176,315 (£74,785) was swallowed up in paying for the dinner and covering guest speakers' fees, consumer protection officers from the state of Victoria concluded.
Mrs Blair spoke for 45 minutes at the £81-a-head gala dinner at the Melbourne Convention Centre in February.
She was billed as the "noted British attorney, human rights advocate and wife of Prime Minister Tony Blair". She spent much of the lecture promoting her new book, The Goldfish Bowl, about the spouses of prime ministers.
Mrs Blair spoke in February in Perth, Adelaide, Brisbane and Sydney on behalf of the Children's Cancer Institute Australia (CCIA). She also lectured in Auckland, New Zealand.
A leaked draft budget for the Australian leg of the tour suggested she would be paid £102,600, with the promoters set to receive £112,800. The figures were denied by the promoters.
The Victoria investigation was launched after a tip-off that only 8 per cent of the Melbourne proceeds had been passed on to charity.
Victoria state rules stipulate charities must receive at least 60 per cent of the proceeds of fundraising events.
The CCIA has been given until tomorrow by Consumer Affairs Victoria (CAV) to show why it should remain registered in Victoria.
Downing Street declined to comment. But Chris Grayling, the shadow Leader of the Commons, said: "The fact that Mrs Blair's commercial activities have left her exposed to an Australian government inquiry confirms my view that she has to stop making money in this way. We cannot have the office of British Prime Minister sullied like this."
He added: "Nor is it right that any charity should be put in such an invidious position. Money raised at a charitable event should be for charity."
The Harry Walker Agency, which organised Mrs Blair's fundraising tour of Australia, acknowledged that the Melbourne event had not been a success.
But it said that about $Aus 500,000 (£212,000) was raised for cancer charities in Australia and New Zealand at a series of dinners attended by Mrs Blair.
Max Markson, who organised the event, told The Australian newspaper: "The Melbourne dinner was not well supported due to the overwhelming bad publicity directed at Mrs Blair."