The 59-year-old, who at the time was chief of air staff, was formally arraigned with 10 counts of fraud, criminal breach of trust and money laundering at a federal high court in Abuja on Monday.
One of the charges states that he removed 1.4 billion naira from the air force accounts to purchase a mansion in the upmarket Maitama district of the capital.
Badeh was remanded in custody until Thursday when his bail application will be heard.
Former president Goodluck Jonathan appointed Badeh chief of defence staff in January 2014 at a time of growing dissatisfaction at the military's handling of Boko Haram's insurgency.
Badeh vowed a swift end to the conflict, which began in 2009, but his time in office saw the Islamist militants run riot in three northeast states, seizing swathes of territory.
The military appeared in disarray, with troops complaining about a lack of weapons and even bullets to fight the better armed rebels, leading some soldiers to refuse to deploy.
Former national security advisor Sambo Dasuki is currently facing a separate trial over his alleged diversion of billions of dollars for weapons procurement using bogus defence contracts.
Badeh's time in charge also saw Boko Haram's abduction of more than 200 schoolgirls from the town of Chibok in April 2014, which caused worldwide anger and criticism of the government response.
In May that year he disclosed the military knew where the 219 girls were but that a rescue mission was dangerous. Nearly two years on, none of the teenagers has been found.
Nigeria's current President Muhammadu Buhari, whose anti-corruption campaign has seen several prominent politicians and officials arrested, sacked Badeh and his entire military high command in July last year.
It will recalled that in a widely circulated statement last Thursday, the former chief of Defence staff alleged that he was being persecuted by the Economic and Financial Crime Commission (EFCC), describing as false allegations that he was being investigated over arms deal.
#Alabingo with additional report from Afp.
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