The financial management and governance of Kids Company will be examined as part of a statutory inquiry into the charity's activities, it has been announced.
The Charity Commission said it would also be looking into concerns about the organisation's administration, following "intense public scrutiny and speculation" over how it was run.
As part of the inquiry the commission will also identify wider lessons for other charities and trustees.
Although Kids Company closed on August 5 - amid allegations of financial mismanagement, drug taking and sexual abuse - the independent regulator of charities in England and Wales has been engaging with it since July 17.
A spokesperson for the Charity Commission said: "In light of the intense public scrutiny and speculation over the charity's activities, and the increasing number of allegations in the public domain about its governance and financial management, the commission has now formalised its engagement in a statutory inquiry in order to investigate and put on the public record whether or not these allegations are found to be true."
Kids Company received millions of pounds in taxpayer funding and was backed by high-profile celebrities including rock group Coldplay, which donated a reported £10 million to it.
A week before the charity's closure it was given a Government grant of £3 million - against the advice of senior civil servants - that was partly used for salaries.
The commission said the charity's trustees have welcomed the inquiry and have been cooperating.
The inquiry will liaise where appropriate with the Official Receiver and Insolvency Service, and once concluded will publish a report into what was looked at, what was done, and the outcomes.