Bishop Domenico Mogavero, who oversees the diocese of Mazara Del Vallo near Trapani, has been questioned as part of an investigation into the illegal use of diocese funds between 2010 and 2011.
Italy's financial police are investigating how €180,000 (Around £130,000) of funds were allegedly in his personal account.
Italian newspaper, Corriere della Sera, has reported that ex-economist of the diocese, Fr Franco Caruso, is also under investigation.
He faces allegations of taking €250,000 (around £180,000) of church money destined for charitable projects.
It has also been alleged that some missing money was given to another local priest, Fr Vito Caradonna.
He was suspended by Bishop Mogavero in 2011 after the priest was sentenced to two years in jail for attempting to sexually assault another man.
He was removed from his position in 2014.
Mr Mogavero's lawyer, Stefano Pellegrino, has said that his client is innocent: "Fr Mogavero has clarified his position in an interview with police today.
"On discovering irregular activity on the diocese accounts he asked his economic advisers to look matters, before reporting them to the police personally."
