Francois Fillon has been placed under formal investigation over an alleged diversion of public funds, French prosecutors say.
The center-right presidential candidate is suspected of paying hundreds of thousands of euros to his family for work they may not have done.
Francois Fillon denies wrongdoing, but had earlier said he would quit the presidential race if placed under investigation.
Until recently, he was the favorite to win the elections in April and May.
However, the former prime minister has now slipped behind far-right National Front leader Marine Le Pen and centrist Emmanuel Macron.
On March 14, Francois Fillon, 63, was personally placed under formal investigation over suspicions that he arranged for his wife Penelope to be paid public money for work as his parliamentary assistant which she did not actually carry out.
Francois Fillon is also being investigated over payments to his two children Marie and Charles when he was a senator. He has said his children were paid as lawyers, for specific tasks. But neither was a qualified lawyer at the time.
In all, Francois Fillon is suspected of diverting public funds, complicity in misappropriating funds, receiving the funds and not declaring assets fully.
A magistrate had already been investigating the case, but until now the inquiry did not mention directly Francois Fillon.
The embarrassment is acute because this is the same Francois Fillon who before the campaign said it would be inconceivable for someone to remain as a candidate if placed in this legal situation, our correspondent adds.
In a separate development on March 14, French media report that Marine Le Pen is now suspected by the country’s tax authorities of undervaluing her share of two properties jointly owned with her father Jean Marie Le Pen.
Marine Le Pen has made no public comment on the issue.