Monitor is looking into the financial sustainability of Southend University Hospital Foundation Trust "on behalf of patients", the NHS regulator said.
Finances became a concern when a planned £7.8m deficit grew, for which Monitor could see no recovery plan.
The hospital blamed the larger-than-anticipated deficit on growth in demand and increased staff recruitment.
Hospital chairman Alan Tobias OBE, said:  "The overspend is a result of vital investment in services and more staff to ensure high standards of patient care as well as the rise in attendances.
"We welcome this review to clearly demonstrate to Monitor - as well as patients and stakeholders - our future financial plans are both robust and sustainable."
The hospital has pledged to cut the deficit while maintaining "high quality care for local people" and said it was committed to returning to a surplus within three years.
Monitor said its investigation will look into the state of the hospital trust's finances, assess the strength of its financial management and explore ways of improving its sustainability, on behalf of patients across the region.
The investigation will also examine how the trust works with other local health and care organisations to respond to the financial challenges it faces.
Katherine Cawley, regional director at Monitor, said: "People are relying on Southend to provide them with quality healthcare now and in the future, and we are concerned that this may be at risk because of the trust's poor financial performance.
"We have launched this investigation to find out more about the financial situation at the trust and to establish what can be done to improve things."

Liberal centrist Emmanuel Macron - winner of the first round - and nationalist Marine Le Pen are already revolutionising French politics.
They have delivered a big blow to the long-dominant Socialists and conservative Republicans.
Mr Macron leads a new movement called En Marche (On the Move), while Ms Le Pen is backed by the National Front (FN). They disagree on many issues, especially Europe and immigration.
The decisive second round is on 7 May - and polls suggest Mr Macron is ahead. So what are the main differences between the Macron and Le Pen visions?
Macron:
Le Pen:
Macron:
Le Pen:
Macron:
Le Pen:
Macron:
Le Pen:
In depth: Meteoric rise of Emmanuel Macron
In depth: Is Marine Le Pen far right?
Five things the French election has told us
France heads into uncharted waters
Macron:
Le Pen:
Macron:
Le Pen:
Macron:
Le Pen:
Macron:
Le Pen:
%
Emmanuel  Macron
%
Marine  Le Pen
Please enable Javascript to view our poll of polls chart.
Last updated  April 25, 2017
The polling average line  looks at the five most recent national polls and takes the median value, ie, the value between the two figures that are higher and two figures that are lower.

One woman was injured on Wednesday's incident, which led to dozens of nudist sunbathers fleeing Carataggio beach near Porto-Vecchio.
Witnesses said the man had threatened the group if they did not get dressed.
When they refused, he allegedly pulled out a rifle and started firing.
The injured woman, reportedly in her thirties, was hit in the thigh as she ran away.
The suspect - whose identity has not been revealed - owns a beachside cafe, police said on Friday. One man had been questioned in connection with the shooting but had since been released.
Despite being famous among nudists, the beach is not an official naturist site and locals have complained about their presence there.

Robinson, 21, who previously had two loan spells at the Lilywhites, turned down a new deal with Villa and joins for an undisclosed compensation fee.
Newcastle-born former Rotherham man Pringle, 26, signs for an undisclosed fee after one year with the Cottagers.
Pringle made nine league starts during a short loan spell at Ipswich in 2016.
Robinson told the club's website: "It was obviously a big decision for me leaving Aston Villa, I've been there since I was eight-years-old.
"But, if there was ever a club for me to settle down with and sign permanently with, it would be Preston North End."
Find all the latest football transfers on our dedicated page.
A £9.8m deficit recorded for 2014/15 at an Essex hospital is to be investigated by a health service watchdog.
[NEXT_CONCEPT]
National renewal is what both the rival French presidential candidates are promising, but they offer very different paths to get there.
[NEXT_CONCEPT]
A shootout on a beach popular among naturists on the French island of Corsica was caused by a local businessman who disagreed with their presence there, police say.
[NEXT_CONCEPT]
Championship side Preston North End have signed Aston Villa forward Callum Robinson and Fulham midfielder Ben Pringle, both on three-year contracts.