The painting is a silkscreen portrait of Fawcett created by artist Andy Warhol, which was shown in O'Neal's bedroom during an episode of the reality series Ryan and Tatum: The O'Neals.
The University of Texas has claimed that the piece belongs to the school because Fawcett agreed to donate all her artwork to her alma mater at the time of her death, AFP reports.
However, O'Neal's rep insisted that the portrait, which has been valued at $30m (£18m), is the actor's rightful property and predicted that he will be "vindicated in the courts".
The rep added that Warhol completed two paintings of the actress, with one being given to Fawcett and the other to O'Neal.
O'Neal's publicist said: "This is a completely ridiculous lawsuit. Ryan O'Neal's friendship with Andy Warhol began ten years prior to his meeting Farrah Fawcett.
"When Ryan introduced Andy to Farrah, Mr Warhol chose to complete two portraits of her, one for Ms Fawcett and one for Mr O'Neal. Mr O'Neal looks forward to being completely vindicated in the courts."
Lawyers for the University of Texas have demanded that O'Neal turn over the Warhol painting or pay the money equivalent.
Fawcett and O'Neal dated on-and-off for nearly two decades, before splitting in 1997. They reunited in 2001 and stayed together until the actress's death from cancer eight years later.
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Watch a clip from Ryan O'Neal's recent interview with Piers Morgan below: