Tiffany Mitchell, 28, a psychic, was out with a friend at Club Avenue night when the Mean Girls star made an appearance.
Mitchell reveals she had a premonition about Lohan and approached her inside the club to offer her a free reading, but the star turned her down saying, ""Give me my space.""
The psychic claims that as she walked away, her friend heard Lohan call her a ""f**king gypsy"".
Mitchell's pal and Lohan briefly exchanged insults and then the troubled actress allegedly lashed out, apparently punching the psychic in the face.
Police were called and the star was arrested for assault.
Mitchell's husband tells TMZ.com, ""We are not gypsies... it was a racist comment. Just because your career went down the drain and your new movie sucks, you can't go around beating people up.""
Alternative reports suggest Lohan lashed out because Mitchell was spotted chatting with The Wanted star Max George, who had joined Lohan at the club after performing with Justin Bieber at Madison Square Gardens.
Lohan has since been released from police custody but now faces jail time following her latest arrest - because she's still on probation for a shoplifting charge from last year (11).