Superior Court Judge Keith Schwartz told Lohan he would sentence her to jail if she accepted a plea deal involving the theft of a $2,500 necklace from an upscale jewelry store.
"If you plead in front of me, if this case is resolved in front of me, you are going to jail," Schwartz said. "Period."
Lohan, 24, has pleaded not guilty to the charge.
Rejecting the deal would trigger a hearing during which prosecutors would present some of their evidence to another judge. Schwartz said that judge would sentence Lohan for a probation violation if she determined Lohan should stand trial.
That could mean Lohan is sentenced to jail even before the theft case is tried.
Schwartz has said he thinks the actress violated her probation in a 2007 drunken driving case, and two other judges have warned Lohan she faced a return to jail if she got into trouble again.
That was before police began investigating the "Mean Girls" star last month after the necklace was reported missing from the store in the Venice area of Los Angeles. The necklace was given to detectives by an unidentified Lohan associate before police could serve a search warrant.
Wearing high-waisted white pants and a low-cut black top, Lohan told Schwartz she understood her options. She left the courtroom wearing sunglasses and clutching her mother's hand.
Prosecutors gave Lohan's attorney Shawn Holley a copy of surveillance video from the jewelry store and police reports in the case. The potential evidence will now be reviewed by Lohan and Holley, who must decide how to proceed before the actress returns to court on March 10.
Schwartz told the actress he was treating her like any other defendant and wanted her to know precisely what she was facing.
"I want you to get on with your life," Schwartz said.
He said he doubted Lohan would take the plea deal, which prosecutors declined to discuss after the hearing.
Lohan has lived with the near-constant prospect of returning to jail since May, when she missed a court hearing in the DUI case and a judge revoked her probation. She was sentenced to jail twice and rehab twice last year alone, but her incarcerations have been shortened by jail overcrowding.
Schwartz did not talk in detail about a report he received from probation officials, but said he thought Lohan's release conditions should be modified if she is placed back on probation. He also said Lohan should receive psychological counseling and get a new sobriety sponsor to "to get your life back on track."
Lohan's father, Michael Lohan, agreed with the judge's assessment after the hearing, saying his divorce from his wife had created many of their daughter's problems.
Michael Lohan believes his daughter should fight the theft case.
"I don't see Lindsay as a criminal," he said. "This is all a result of her addiction."
The theft case is not the former star's only legal concern. On Monday, she was cited for driving 59 mph in a 35 mph zone in West Hollywood, sheriff's spokesman Steve Whitmore said.
Prosecutors in Riverside County are also considering whether to charge Lohan with misdemeanor battery for an altercation with a rehab worker at a Betty Ford Center facility in December. She received three months of treatment at the facility after failing a drug test last year.
The constant cycle of court appearances has kept Lohan's career stalled. She lost her part in a biopic of porn star Linda Lovelace during her recent rehab stint and has not appeared in any major projects since 2007, when she was arrested twice and charged with drunken driving and cocaine possession.
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