The lawsuit filed Wednesday in federal court accuses officials of false arrest and violating constitutional rights of free speech and assembly.
Attorney Lawrence Krasner called his clients "American heroes who effectively fought against economic equality for the 99 percent ... whose thanks from the government was this bogus arrest."
Another attorney representing the plaintiffs, Paul Hetznecker, said the arrests struck at the "very heart of our democracy."
"We live in a dangerous time when the right to gather in protest in a collective voice of dissent is criminalized," he said.
The lawsuit seeks unspecified compensatory and punitive damages as well as injunctive relief involving the city's handling of the Occupy demonstrators. There are 26 plaintiffs, and the police commissioner and other police officials and officers are named as defendants.
A city solicitor declined to comment, saying officials hadn't seen the lawsuit.
The protesters camped next to City Hall beginning in October 2011 in solidarity with Occupy Wall Street protesters in New York. They spoke out against economic inequality and what they called corporate greed.
City officials evicted them at the end of November 2011, citing long-planned renovation work at the site. A judge later acquitted 31 protesters of failure to disperse, obstructing the highway and criminal conspiracy.