The Press Complaints Commission felt it had been made a "scapegoat" over its handling of the phone-hacking scandal, the Leveson Inquiry has heard.
The press watchdog was criticised for failing to do enough after evidence of the practice at the News of the World emerged.
But Baroness Buscombe, who stood down as chairwoman of the watchdog last year, accused publisher News International of misleading her.
"I regret that I was clearly misled by News International, that I accepted what they had told me," she told the hearing.
"I felt all the way through the process somewhat hands-tied by merely being able to ask questions, write letters to editors and so on. Indeed one or two editors didn't even bother to reply."
In 2009, the PCC dismissed allegations, arising from a Guardian investigation, of widespread phone hacking by journalists at the now-defunct Sunday tabloid and claimed in a report that the Guardian stories failed to live up to their "dramatic billing".
Baroness Buscombe said "with hindsight" she regretted the report but pointed out the difficulties the regulator faced in trying to deal with the issue.
"I put my name to it but I was never comfortable with it," she said of the report. "We didn't have the locus, the powers, the structures, the processes in order seriously to consider this whole issue."
Asked whether she thought the withdrawal of political support from the PCC in the wake of the hacking scandal had been unfair, she replied: "We felt very much we had been used as a scapegoat."
Lady Buscombe indicated her belief in self-regulation of the press had been shaken since she took on her role as chair of the watchdog as editors had not always been honest with her.
She said: "I was, and still am to some degree, very supportive of the principles of self-regulation."
Asked by Lord Justice Leveson to what extent she had "lost faith with it", she told him: "I believe there's a real problem with the alternative, ie state regulation, but this demands a degree of trust.
"I remember towards the end of my time there, one of the editors asked me 'Peta, don't you trust us?'.
"And I said with an incredibly heavy heart 'How can I?'. We felt we hadn't been told the truth."
She went on: "There came a time when I had to question the editors on the commission in my head, which was very, very difficult because these are people I have worked with, debated with, discussed with and so on."
Lady Buscombe revealed that editors of some newspapers, including the Financial Times and the Daily Mirror, had threatened to leave the PCC as a result of adverse adjudications by the Commission.
"When I was chairman of the PCC, I have to say I would love you to have been at the end of the phone sometimes, when we had issued a critical adjudication.
"At the end of the phone some of the editors and their reaction, their fury, their anger, that we had issued a critical adjudication.
"There is no question that actually when we issue a critical adjudication, it really hurts. The point being, do they respect it, do they accept it?
"Because my view is the newspapers as a whole have an extraordinary privilege here at the moment in that they have a system where getting a telling-off in a sense from the regulator, it's hoped that that is effective.
"The reality is I think the rest of the world would kill for such a system."
She said when she joined the PCC she encouraged Richard Desmond, owner of the Daily Express and Daily Star, to rejoin the Commission, although that was slightly beyond her remit.
But when he withdrew again in January 2011, she did not ask him to come back: "The second time I did not because I realised that I had enough battles on my plate in terms of the relationship with the industry.
"To step over the line in terms of my role again wouldn't have been helpful, wouldn't have been right."
Lady Buscombe was asked about comments she made in response to select committee remarks on the 2009 PCC phone hacking report, described by counsel to the inquiry Robert Jay QC as: "You came back fighting."
She said: "I did not realise I was being lied to. I was taking on trust what the police had told us. We were dealing only with allegations from a newspaper which we certainly did not dismiss.
"If only I had not taken at face value what people told me, and again one did not want at that stage to mistrust what one was being told. And certainly not mistrust what one was being told by the police."
The Tory peer said she regretted a comment that sparked a libel action from lawyer Mark Lewis in 2009.
"Frankly I did what I did in good faith. I regret it, just as I regret believing what I was told by News International."
She told the inquiry the PCC was in a difficult position when it came to investigating phone hacking.
"We did not have the processes, how could we investigate? Could we ask people to attend on oath? We could ask people to attend, but then what? What could we do with it?
"We could be hostages of fortune. We could raise expectations that we could not meet.
"It was rather one of those, you are damned if you do and you are damned if you don't.
"We were trying to consider something that had happened we thought back in the beginning of the century, nearly 10 years earlier, two people had gone to jail when we wrote that report in 2009."
Asked about the future of press regulation, Lady Buscombe said proposals by current PCC chair Lord Hunt of Wirral to overhaul the body, including a five-year rolling contract for publishers, would be "very difficult".
"That's not to say I denigrate the proposal, because I think it's the right thing to do," she added, but she said it might need some sort of "backstop" power.
Asked by Mr Jay if that meant a piece of legislation compelling people to join, she said: "In a sense, yes it does, but that's very difficult because we are talking about a global industry now and you can't make the Huffington Post or anybody beyond our shores sign up to something."