Archbishop Robert Zollitsch of Freiburg is suspected of allowing the re-appointment of a priest accused of child abuse in 1987.
Archbishop Zollitsch was in charge of personnel in Freiburg at the time.
The archdiocese rejected the charge, accusing prosecutors and the media of "sensationalism".
It said Archbishop Zollitsch had not been responsible for the re-appointment, which was decided independently by the priest's religious order, Reuters news agency reported.
One prosecutor, Wolfgang Maier, was quoted as saying the accusation was based on a single complaint by an abuse victim and was yet to be scrutinised.
Germany is one of a number of European countries in which the Catholic Church has been hit by a wave of child abuse accusations this year.
In recent months, Archbishop Zollitsch, who heads the German Bishops' Conference, has apologised to victims of abuse, saying the Church had failed to help them.
SIC: BBC