Before the scandal broke, polls had consistently shown him to be the most likely winner of the two-round election in April and May.
Here is the furore explained in five key questions:
He was prime minister from 2007-2012 under rightwing president Nicolas Sarkozy, the high point of a career that saw him first elected to parliament in 1981.
He emerged as the surprise presidential nominee for the Republicans party in November, promising to slash public spending, cut bureaucracy and adopt family-friendly policies.
He also stressed his sleaze-free past and the need for leaders to be "above reproach".
After his primary victory, but before the current scandal, polls had consistently shown him to be the most likely winner of the two-round election in April and May.
On January 25, the Canard Enchaine weekly newspaper broke the news that Fillon had employed his Welsh-born wife Penelope as a parliamentary aide.
In that report and another the week after, it said that she and two of her children enjoyed a pre-tax income of around a million euros over more than decade from funds available to MPs to run their offices.
Late Monday, Francois Fillon published figures stating his wife had earned a total of more than 680,000 euros (732,000 dollars) working as an aide for him and the lawmaker who replaced him when he became a minister, beginning in 1986 and lasting a total of 15 and a half years to 2013.
The Canard Enchaine also revealed Penelope was paid around 5,000 euros ($5,370) a month between May 2012 and December 2013 by the magazine Revue des Deux Mondes, owned by a friend of Fillon.
Employing a family member is not illegal in France, unlike in Germany or at the European parliament.
But there are suspicions that Penelope did little or no work for her parliamentary salary, with the Canard Enchaine and other media groups unable to find witnesses to her contribution.
An investigation has been launched into the possible misuse of public money.
Penelope had been a low-key political wife known to prefer time at the couple's 12th-century country chateau than among the Parisian chattering classes.
In an interview in 2007, which was unearthed by French reporters last week, she explained that she had "never been actually his assistant or anything like that."
In a press conference on Monday, he addressed almost all of the claims individually while claiming he was the victim of "lynching" and "political assassination" in the media.
He admitted he had paid Penelope for 15 years in total, with her after-tax monthly income averaging 3,677 euros over this time, which he said was justified.
He said he had failed to appreciate how this practice might be seen as unacceptable by voters and apologised for an "error".
He said his wife has worked for him in his constituency in the central Sarthe region, managing his mail and his diary as well as his local meetings.
This explained why she did not have a pass for the national parliament or a work email address, Fillon said.
The clip of Penelope in which she said she had not worked as his assistant had been "taken out of context".
He also pledged to publish her pay slips, while saying that no one was qualified to judge the work of a parliamentary assistant except the MP.
He also revealed new details about a consultancy firm called 2F Conseil he set up in 2012, which the Canard Enchaine said had paid him an after-tax salary of 757,000 euros.
He had not been paid by any Russian company or the Russian state, he said, while insurance group Axa and financial companies Fimalac and Oddo were clients.
In this scenario, the main beneficiary would be 39-year-old centrist Emmanuel Macron who would overtake Fillon to go through to the run-off against far-right leader Marine Le Pen in May.
Le Pen might benefit, too, though her party is embroiled in its own expenses scandal at the European Parliament.
"From tonight, I announce here that it's a new campaign that's starting," Fillon told the press conference on Monday.