Ms MacGregor said the sexual harassment "occurred over a long period of time" and she made the decision to resign after Mr Craig repeatedly told her he had dreamt about her.
She revealed that she resigned while in Mr Craig's car on the way to an early morning media interview several days out from the election.
"We initially engaged in small talk and I asked him how he had slept the night before. He said something to the effect that he had slept well the night before because he had imagined he was sleeping on my legs," she told the court this morning during day seven of Mr Craig's defamation trial.
She said she was angry, uncomfortable and upset by his comment.
"It was not the first time he had mentioned sleeping on my legs - I had told him only two days earlier to stop saying this to me as it made me feel uncomfortable."
As the pair drove to the city, Ms MacGregor told Mr Craig she wanted to talk about her pay. They had verbally agreed that she would receive a higher rate of pay during the election period.
However, after that she said Mr Craig repeatedly refused to formally agree on a pay rate, or pay her for her work.
"We argued and I told him if he was not willing to discuss my pay, I was leaving. By that I meant I was resigning."
Mr Craig told her it was not the time to discuss such matters.
"I told him I was leaving. I got out of the car, I did not accompany Mr Craig to his radio interview."
Later that day, Ms MacGregor made a complaint to the Human Rights Commission, alleging that Mr Craig had sexually harassed her.
News broke of her resignation later that day when members of the media contacted her to arrange interviews with the politician.
During one conversation with Barry Soper from NewstalkZB, Ms MacGregor became upset and said Mr Craig "was a manipulative man".
"But I told him that's all I wanted to say. I did not talk to any other reporters about my resignation."
Colin Craig is on trial for allegedly defaming Taxpayers' Union director Jordan Williams, a friend of Ms MacGregor's to whom she turned to after her resignation.
Mr Williams said he was "horrified" at her claims Mr Craig had sexually harassed her, and after seeing letters and poems the politician sent her, revealed all to other Conservative Party members.
When Mr Craig found out, he publicly claimed that Mr Williams was part of a group of "culprits" determined to have him removed as party leader through a "campaign" of "false accusations".
At a press conference and in a pamphlet sent to more than 1.6 million households across the country, Mr Craig allegedly said that Mr Williams was a liar and had "spread false accusations".
Mr Williams then filed defamation proceedings in the High Court, saying he did not lie about Mr Craig.
Ms MacGregor is giving evidence in support of Williams's allegation.
Mr Craig in court for her evidence. His wife, who as at the trial last week, was not present today.
