The E! News host reveals the truth behind the controversy

Giuliana Rancic finally speaks out about her Fashion Police controversy, the health problems she s kept secret, and why she s become shockingly thin. Subscribe now for instant access to the exclusive interview, only in PEOPLE.

There’s plenty of playful banter when it comes to discussing red carpet hits and misses on E!’s Fashion Police, but for Giuliana Rancic, the scandal that erupted after a show in February is no laughing matter.

Rancic faced a firestorm of backlash after the show’s post-Oscars recap, in which she commented that a dreadlocked Zendaya probably smelled of “patchouli oil and weed.” Zendaya promptly issued a statement, calling Rancic’s words “ignorant slurs.”

“I read her statement and I was shocked,” says Rancic, 40, speaking out for the first time about the controversy. “I made [the joke] as a reference to the hippie culture. It was a bohemian-chic reference, not about race, nor would it ever be. It was horrifying to have my name in a headline with words I have never been associated with in my life.”

The cause of the misunderstanding? Erroneous editing. “On set, I made peace signs and I said boho twice,” says Rancic, who did not write the joke. “It was edited. And my words were taken out of context. If I thought this joke could be interpreted another way, I never would have done it. I felt horrible.”

Rancic also reveals that when the show was taped (only one take was done, not three as was falsely reported), no one voiced any concern about potential implications.

“There were about 50 sets of eyeballs on set that day,” she says. “And not one person thought that it had the undertones that it ended up having once it aired because they heard it in context.”

Yet by the time Zendaya’s statement went viral, the damage had been done. “I started very quickly getting death threats,” Rancic recalls. “People were sending me pictures of the barrel of a gun saying, ‘I’m going to kill your family.’ It was awful.”

Soon after, co-hosts Kelly Osbourne and Kathy Griffin resigned.

“[The show] without Joan [Rivers, who died in September] was difficult from episode one,” Rancic admits. “There were just all sorts of problems. I really believe it was only a matter of time before that specific show with that cast and that format fell apart.”

Now that the dust has settled, Rancic hopes to move on.

“It was a very unfortunate incident,” she says. “I’m so regretful that people interpreted the joke [as they did]. I hurt people and I feel terrible about that. And I learned a really important lesson that if people are offended, it doesn’t matter the intent.”

For much more from Rancic, including a very personal reveal, pick up the latest issue of PEOPLE, on newsstands Friday