She arrived under the glare of television cameras at the Court of Justice of the Republic in Paris, a tribunal that hears cases against ministers.
The 60-year-old has been charged with negligence during her time as finance minister from 2007-2011 when she approved a payment to Bernard Tapie, the former owner of sportswear giant Adidas.
Tapie claimed a state-owned bank had defrauded him of hundreds of millions of euros when he lost control of the sports brand. Lagarde approved a settlement of 404 million euros (428 million dollars) in 2008.
Lagarde told the court she had been "profoundly shocked" by the conclusions of investigating judges who brought the case to court after deciding she had failed to question the deal.
"I acted in all honesty and in confidence with the public interest as my only objective," Lagarde said, adding that she had perhaps been duped but "was I negligent? No."