Prosecutors in San Francisco and Los Angeles claim they found 25 people with serious criminal histories driving for Uber in the state, including a murderer, a sex offender and an identity thief.
The company's background checking process was riddled with "systemic failures", they alleged.
"In Los Angeles alone, registered sex offenders, a kidnapper, identity thieves, burglars, and a convicted murderer had passed Uber's 'industry leading' background check," the prosecutors wrote in a complaint that seeks penalties against the company.
The company's publicity, it said, was "likely to mislead consumers into believing that Uber does everything it can to ensure their safety and that Uber's background check process will capture all of the criminal history of an applicant," the complaint said.
It said the allegedly "misleading representations" were particularly dangerous given that many California parents send their teenage children unaccompanied with Uber drivers.
Uber treats its drivers as independent contractors, and has generally fewer contract obligations surrounding them then typical cab companies.
"While we agree with the district attorneys that safety is a priority, we disagree that the Livescan process used by taxi companies is an inherently better system for screening drivers than our background checks," a company statement said.
Uber said it was looking forward "to resolving this issue" noting that the case was similar to one settled last year by rival ridesharing company Lyft.
Uber, which recently reached a valuation of USD 50 billion , has been criticized, boycotted and faced legal action around the world because of its cost-cutting business model.
A British union has said last month it would take legal action over pay and conditions for drivers.