"He started his political activity based on this racist lie that our first black president was not an American citizen," she said.
Trump said he did "a great job and a great service — not only for the country, but even for the president — in getting him to produce his birth certificate."
Clinton pointed out that the New York real estate tycoon was sued twice by the Justice Department for discriminating against African-Americans.
In his defense, Trump said he was never found guilty of discrimination.
Markets seemed to react to Clinton making headway against her GOP rival as the debate progressed.
U.S. stock index futures erased losses to trade higher amid the debate, and the Mexican peso reversed losses to trade more than 1 percent stronger against the U.S. dollar.
This is a developing story. Please check back for updates.