The family says it has LAPD paperwork that says Knight ordered the slaying as revenge for the murder of rapper Tupac Shakur (search).
Notorious B.I.G., born Christopher Wallace and also known as Biggie Smalls (search), was gunned down March 9, 1997 after a party in L.A.
Shakur was killed in a drive-by shooting six months earlier in Las Vegas.
No one has ever been charged in either murder.
Wallace's family has slapped the city of Los Angeles with a federal civil rights lawsuit claiming detectives shelved the case because rogue LAPD cops had participated in the fatal drive-by.
Jury selection in the case starts today and opening arguments are slated for later in the week.
A lawyer representing the LAPD and Knight could not be reached for comment last night.
Shakur and Wallace had been feuding before the murder and a rivalry between their record labels — Knight's L.A.-based Death Row and New York-based Bad Boy Entertainment — had escalated.
The documents include a warrant and police affidavit that was used by cops in 1999 to justify searching Knight's car, an office that he used and two homes.
"Knight took the death of Shakur very personally," according to the documents the Wallace family says it possesses.
"By removing Wallace, it would not only avenge the death of Shakur, but would hurt Bad Boy Entertainment with the loss of their top rapper."
Knight served five years behind bars in 1996 for violating probation he received for assault and weapons convictions in 1992.
Lawyer Perry Sanders, who is representing the Wallace estate, is confident they will be able to prove their theory.
"[The LAPD] are the people charged with preventing and solving homicides such as this, even if it means looking at some of their own dirty laundry," he said.