Muluzi has accused the government of defamation and false arrest and imprisonment over the plot allegedly hatched by his party and a former army general, his lawyer Kalekeni Kaphale told reporters.
Muluzi "suffered total embarrassment and humiliation through his detention, causing untold loss of confidence by the people who trusted him," Kaphale said.
Kaphale, one of the country's leading attorneys who is also defending Muluzi in a separate corruption trial, said he had written to the attorney general seeking unspecified compensation within three months.
Muluzi was arrested on his return from a British holiday in 2008, charged with treason, quizzed by police, and placed under house arrest.
Police raided his residence to search for arms, Muluzi said at the time, but nothing was found.
Despite the dramatic charges, he and his alleged co-conspirators were never taken to trial and the charges were dropped.
Muluzi had laughed off the coup plot charges, saying he was not a "violent person to take over government by force".
Muluzi wrested power from dictator Kamuzu Banda in the country's first democratic elections in 1994, and ruled for 10 years before handing power to his chosen successor Bingu wa Mutharika.
But Mutharika quickly turned against his political mentor and formed his own party, saying he feared a plot to topple him.
His administration has already paid compensation to eight people who had been charged in the case, including a former army general and police chief, after they sued the government for unlawful detention.
Muluzi still faces charges of siphoning $12m from donors meant for development projects. He has denied the charge, but his case has been delayed due to his poor health.