The cocky billionaire, 69, called the princess "supermodel beautiful" months after her tragic death in August 1997.
When asked if he "could've nailed her" by a radio DJ, Trump claimed: "I think I could have."
But the dad-of-five – now married to beauty queen Melania Trump – said he had never "pleasured himself" to images of Diana.
The remarks could come back to haunt Trump as he bids to replace Barack Obama as US President.
Washington insiders last night told the Sun the comments are "embarrassing" for an aspiring world leader.
Trump was a regular guest on Stern's show in the late 1990s.
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