Mr MacShane quit as MP for Rotherham last year after admitting using fake receipts to wrongly claim more than £7,000 of parliamentary expenses.
He apologised to his constituents, saying his actions were "grievous". The case was originally referred to Scotland Yard in October 2010, but police and prosecutors took no action at the time, citing a lack of evidence.
But last year, an inquiry by MPs on the House of Commons Standards and Privileges Committee found that he had made a written statement to it admitting he had submitted false invoices to claim around £7,500 in expenses.
He resigned after the committee recommended he be suspended for an unprecedented 12 months.
Conservative MP Philip Davies wrote to the police asking them to reopen their inquiry in light of the new evidence and after consultation with the Crown Prosecution Service, they have decided to do so.
The false invoices related to work Mr MacShane carried out in Europe, an area for which he previously had ministerial responsibility in the government of Tony Blair.
Mr MacShane, who has paid the money back, said he had made no "personal gain" but admitted that he had been "foolish" and should take responsibility for his actions by standing down.
Source: Police to re-open Denis MacShane expenses investigation
