Derek Fenton's dismissal violated his constitutional right to free expression, the American Civil Liberties Union said in its lawsuit.
Fenton burned part of the Quran to protest plans to build an Islamic center several blocks from the World Trade Center site.
Police ushered him from the scene, but he was not arrested. NJ Transit said it fired him two days later for violating its code of ethics.
Fenton "has the right to engage as a citizen in expressive activity about matters of public interest, including matters related to the proposed construction of an Islamic community center near Ground Zero," the lawsuit alleges. "When he burned pages of the Koran on September 11, 2010, as a protest against the center, Fenton was exercising that right."
NJ Transit's code of ethics requires employees to give notice to an ethics liaison officer before participating in political activities. An employee can then participate so long as state or federal law or agency rules don't explicitly prohibit them and "the activity doesn't conflict with the employee's official duties."
It's not known if Fenton gave notice of his plans. An NJ Transit spokeswoman said Thursday the agency wouldn't comment on pending litigation. Fenton's listed phone number was not in service.
Frank Corrado, an ACLU attorney handling the case, said the First Amendment doesn't protect employees of private companies but it applies in Fenton's case because NJ Transit is a quasi-public company created by state statute.
"The First Amendment protects you against governmental action," Corrado said. "He's speaking as a citizen on an issue of public importance, so what governs his ability to speak is the First Amendment and not some employment law."
Fenton's protest was one of many that arose out of the dispute between supporters of the New York mosque and opponents who believe its presence near ground zero is disrespectful to those who died in the Sept. 11 terrorist attacks.
The leader of a small Christian congregation in Gainesville, Fla., had planned to burn copies of the Islamic holy book to mark the Sept. 11 anniversary but called it off at the last minute.
Fenton, 39, had worked for NJ Transit for 11 years as a train conductor and most recently as a coordinator tasked with ensuring the right number of train cars are in service.