The California attorney general and Los Angeles city attorney are filing a lawsuit against Mattel, Toys R Us and 18 other companies over products that they say contain "unlawful quantities of lead."
The move follows major recalls of toys, lunchboxes, children's jewellery and other goods during the last year by the US Consumer Product Safety Commission in Washington.
The suit would force manufacturers and retailers to adopt procedures for inspecting products to make sure they are safe, according to the Los Angeles Times.
Barring that, they would be required to warn consumers that the items contained chemicals known to cause cancer or birth defects.
Mattel said it welcomed the attorney general's involvement and added that it would be helpful for the entire toy industry.
Proposition 65, a successful ballot initiative known as the Safe Drinking Water Enforcement Act of 1986, allows the state to collect civil penalties of as much as $2,500 for each of the millions of contaminated items.
"Obviously, they do not want to put warnings. They are going to eliminate the lead or eliminate the product," said Attorney General Jerry Brown (pictured). "But, going forward, we want to prevent these kind of things from happening."
Brown said he expected the companies to settle the lawsuit by agreeing to "conditions such as testing or putting independent monitors in foreign countries”.