Pic, which is produced by U.K. shingle Ecosse Films, is based on a screenplay by Stephen Jeffreys.
Story focuses on the last two years of the Princess’ life and charts how finding true personal happiness for the first time allowed her to evolve into a major international campaigner and humanitarian.
Production on the pic is expected to begin in Blighty later this year.
Watts, who will next be seen starring in “The Impossible” alongside Ewan McGregor, said: “It is such an honor to be able to play this iconic role — Princess Diana was loved across the world and I look forward to rising to the challenge of playing her on screen.”
The duo are working on another royal pic, “Girls Night Out,” toplining Juno Temple and Alexandra Roach, which HanWay Films is selling at the EFM.