The Daily Mail reported that a modelling agency that Donald Trump worked with in the 1990s also served as an escort service.
The piece, citing a magazine in Melania's native Slovenia, linked the would-be First Lady with the line of work and implied she had met her husband earlier than previously believed.
Blogger Webster Griffin Tarpley wrote that Mrs Trump neared her past becoming public, the BBC reported.
The Daily Mail retracted its story in a posting on its website late on Thursday.
"To the extent that anything in the Daily Mail's article was interpreted as stating or suggesting that Mrs. Trump worked as an 'escort' or in the 'sex business'... is hereby retracted, and the Daily Mail newspaper regrets any such misinterpretation."
Melania warned the newspaper and other media organisations that she would take legal action on August 22.
Trump's lawyer Charles Harder branded the reports "outright lying."
"These defendants made several statements about Mrs Trump that are 100% false and tremendously damaging to her personal and professional reputation," he said.