In testimony which illuminated the human costs of the illegal practice, Mary-Ellen Field described how she lost both her job for Macpherson and one at an advisory firm because of the unfounded suspicions - a double-blow that was all the more serious because she was in poor health.
"It had a very serious effect," she told the inquiry. "I had become ill and was falling down all the time." She didn't identify her illness.
Field said her relationship with Macpherson was once close, but it fell apart after the model's intimate secrets began appearing in the press in 2005. Macpherson became convinced that Field, a fellow Australian, was an alcoholic and ordered her to go to an American rehabilitation clinic.
Field said she was shocked by the allegations she was a drunk who'd been blabbing about her employer, but went along with Macpherson's recommendation because she needed her job.
"I have a severely disabled child who can never look after himself, so walking away from a high-paying position is not a good idea," Field said.
The rehab was grueling - she described it as being "like one of those CIA renditions, except they don't put you in chains" - but it didn't help the situation.
Even though staff at the clinic said Field was not an alcoholic, Macpherson fired her anyway, and Field lost her job at her firm shortly afterward. She told the inquiry there was no doubt the sacking was the result of what happened with Macpherson.
Although it has since emerged that the media leaks were the result of phone hacking by the News of the World tabloid, not any indiscretions, Field said she has not heard from Macpherson in years. Macpherson's office did not respond to emails sent by The Associated Press seeking comment.
Field was one of several victims of press intrusion testifying Tuesday at Britain's Royal Courts of Justice. The inquiry, headed by Lord Justice Brian Leveson, was set up by Prime Minister David Cameron after the scandal over phone hacking and other underhanded tactics used at the News of the World, which was closed in July amid allegations of widespread criminality. The inquiry plans to issue a report next year and could recommend major changes to the way the media in Britain are regulated.
Soccer player Garry Flitcroft told of his family's harassment by the media after the failure of a judicial bid to block news of his affair, saying that at one point journalists used a helicopter to track his movements.
Flitcroft said journalists "wanted to make a statement to me: 'Never take on the press again."'
Margaret Watson, whose daughter Diane was stabbed to death at her Scottish school two decades ago, gave emotional evidence about the way in which her child's memory was smeared in the press. She demanded that English libel laws be extended to cover those who have passed away.
"Just because a person's died, their reputation shouldn't die with them," she said.
British comedian Steve Coogan also testified, claiming that Andy Coulson - who later went on to become British Prime Minister David Cameron's top media aide - had eavesdropped on a phone conversation he was having with a woman in a bid to trick him into making indiscretions.
The parents of murdered British schoolgirl Milly Dowler and film star Hugh Grant were the first victims to testify to the panel on Monday, with Grant being particularly scathing about the Mail on Sunday tabloid, which he suggested had hacked his phone.
The Daily Mail called Grant's allegations "mendacious smears driven by his hatred of the media," but that response in turn sparked outrage, with lawyers at the inquiry saying it smacked of an attempt to intimidate witnesses.
David Sherborne, who represents victims of media intrusion at the inquiry, said his clients feared "the sort of intimidatory tactics that we've seen in the press this morning."
Lawyer Jonathan Caplan defended The Mail, saying the paper's comments were "a response to the fact that (Grant) was commenting freely that there was not a substratum of evidence" to support his allegation.
Leveson had limited sympathy for the Mail's argument, noting that while the paper had defended itself, it had also accused Grant of lying under oath.
"The real issue is whether it's appropriate to go from the defensive to the offensive in that way," Leveson said. He added later: "I would be unhappy if it was felt that the best form of defense was always attack."