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She would spread rumours about me, about how I give blowjobs for motorcycle rides, stripped for money to buy drugs, had a buddy put nails under my tires, told our boss that I ran around the shop(aerospace machine shop) braless. He called me in the office to tell me she said that and asked if I wanted to confront her. Hell yes, I said. When she came in I asked her when was I braless she said that ‘she didn’t personally see me without a bra, but 3 machinists did. It took an hour to get those names out of her. Of course, I was never braless and if I had ever gone braless, those guys would have pestered me about it. My boss asked if I wanted to file a complaint against her, but I had only worked there 4 months at the time and not knowing I would have 6 1/2 more years of this shit, I said no. Kicked myself for that decision everyday for years.
So, to answer your question, how do you deal with a toxic co-worker? You do your job and do not engage them unless what they do disrupts your work. That woman was always watching me, every day, all day. Just waiting for me to fuck up. I was called to the office only a couple of times, but she ran in there everyday to complain about me. I felt sorry for our boss. But I did my job, and did it well. I was on time and worked all the overtime. And totally ignored her. If I had a question, I went to the inspectors who would be inspecting my parts with it. I only complained when she would mess up my workstation (and deny it) or hinder me from doing my job to the best of my ability.