Yousef, 44, has been in solitary for 15 years and said keeping him there indefinitely despite his good behavior amounted to a violation of his due process.
A federal judge is expected to rule soon on whether the lawsuit can go to trial, the Los Angeles Times said Sunday.
Yousef was sentenced to life in prison for the 1993 bombing of the World Trade Center in New York City. Six people were killed and more than 1,000 were injured in the blast.
He has been locked up since his conviction at the federal "supermax" prison in Colorado. He is seeking a change in his status that will place him in the general prison population where he can have human contact and more time outside his cell.
Yousef's U.S. attorney told the Times the stress of years in solitary has already taken a psychological toll on his client. The lawsuit argues Yousef is being kept in solitary because of his conviction, which he cannot change.
But prison officials maintain Yousef remains a security threat and told him his "jihadist" leanings could result in communications that could result in harm to others.