The company’s stock was down by as much as 6% in Monday trading after the latest development following the disclosure that the data of 50 million users fell into the hands of political consultancy Cambridge Analytica.
Shares briefly dipped below $150 for the first time since July 2017.
That left the company’s market value more than $100bn lower than ten days ago, when reports began to surface about Cambridge Analytica’s use of data in Donald Trump’s 2016 election campaign.
However, the shares later fought back to end the session slightly higher, amid a wider Wall Street rally.
The FTC’s bureau of consumer protection said, in a statement by its acting director Tom Pahl, that it “takes very seriously recent press reports raising substantial concerns about the privacy practices of Facebook”.
“Today, the FTC is confirming that it has an open non-public investigation into these practices,” Mr Pahl said.
The regulator said that past settlements by companies that had faced FTC action included orders imposing privacy and data security requirements.
Reports had previously surfaced last week that it was investigating Facebook, but the watchdog had not confirmed this until now.
In the UK, the Information Commissioner’s Office has also launched an inquiry.
Both Cambridge Analytica and Facebook deny any wrongdoing.
Facebook also faces rising discontent from advertisers and users, with US car parts retailer Pep Boys on Monday suspending all advertising on the social network, following a similar move from internet company Mozilla last week.
Last week, UK advertisers’ body ISBA said it had a “constructive and challenging” meeting with the tech giant after it raised concerns over the disclosure.
ISBA said it welcomed the steps Facebook had taken to address these concerns.
Over the weekend, Facebook founder and chief executive Mark Zuckerberg said he expected there were other companies alongside Cambridge Analytica which may have abused their access to large amounts of the social network’s data.