Liberal Party figure Nyunggai Warren Mundine made the claim in an affidavit released by the Federal Court during week one of the three-week trial against John Pesutto.
Ms Deeming launched action against the opposition leader over comments he made about her attending a Let Women Speak rally in March 2023 outside state parliament, which was gatecrashed by a group of men who did the Nazi salute.
Nyunggai Warren Mundin accepted a suggestion Moira Deeming fraternised with Nazis was baseless. (Jono Searle/AAP PHOTOS)
Mr Mundine described Ms Deeming as a close personal friend and recounted a conversation where she told him her children said "my mum's a Nazi".
"She told me that, even though they did not understand what this meant, she was distraught that her children were saying this," Mr Mundine wrote in his affidavit.
He said he was initially "shocked" by a media release he understood to be "suggesting that Moira was fraternising with Nazis" but came to understand the allegation against her was baseless.
Other affidavits detailed the personal and professional impact to Ms Deeming since the events following the rally, including her husband Andrew who revealed the mother-of-four has become isolated, reclusive and fears politically motivated violence.
A senator contacted John Pesutto questioning whether Moira Deeming was given procedural fairness. (James Ross/AAP PHOTOS)
Ms Deeming will continue to be questioned in court on Thursday, before multiple high-profile Liberals give evidence over the trial including federal Senator Sarah Henderson, deputy Victorian Liberal leader David Southwick and former MP Matt Bach who now lives in the UK.
Ms Henderson revealed she had reached out to Mr Pesutto over Whatsapp after the rally with concerns over reports about moves to expel her from the party.
Her affidavit questioned whether Ms Deeming had been given procedural fairness and a subsequent media report that referenced those messages had led to Ms Henderson being called a "Nazi sympathiser" and subject to other false comments on social media.
Ms Deeming has been an independent MP since she was suspended then expelled from the Liberal Party in May 2023.
Mr Pesutto has denied wrongdoing and previously reached settlements with activists Kellie-Jay Keen-Minshull and Angela Jones, issuing both a public apology over their rally involvement.
