Jane Campion, the first woman to nab the prestigious Palme D’Or at the Cannes Film Festival, is signed to direct “Portrait of a Lady” for Propaganda Films.

Laura Jones will adapt the novelby Henry James with an early 1994 production target, sources said Friday. Gramercy Pictures will distribute. Merchant/Ivory Prods. also has expressed interest in making the film for Disney but has several projects scheduled ahead of it.

Campion’s “Portrait of a Lady” will star Nicole Kidman as Isabelle Archer, a young American heiress who winds up in an arranged marriage with Gilbert Osmond. The title character is an atypically strong 19th century femme.

Location scouting has begun in Italy and England. Casting is under way for Osmond.

The New Zealand-born director, who now lives in Sydney, was catapulted into the international spotlight last week when she shared the top prize at Cannes for her third feature, “The Piano,” a sumptuous and tactile tale of adultery. Pic stars Harvey Keitel and Holly Hunter, who took best actress honors in Cannes for the performance. Miramax distributes.

“Portrait of a Lady” will be produced by the “Wild at Heart” trio, Propaganda producers Monty Montgomery, Steve Golin and Joni Sighvatsson.

Budget of $ 10 million-$ 12 million coincides with Propaganda’s annual target of producing one pic in the $ 8 million-$ 12 million range and three more from $ 15 million to $ 20 million.

Jones also penned “An Angel at My Table,” Campion’s critically acclaimed second feature.

Although director James Ivory and producer Ismail Merchant have announced they would do a version of “Portrait of a Lady” for Disney, they are not about to become rivals.

Merchant said in a telephone interview that he and Ivory are in no rush to do “Portrait of a Lady” and applaud Campion’s initiative.

“We have about six projects in development and maybe we’ll get around to (“Portrait of a Lady”) in about 10 years,” Merchant said.

“Picasso,””Jefferson in Paris” and “Soldier’s Daughter Doesn’t Cry” are some of the higher priority projects of Merchant/Ivory.

“We don’t want to race with anybody,” Merchant said. “We are proud we have paved the way for other artists to consider E.M. Forster and Henry James. James is a world-class writer and everyone is interested in a world-class writer.”

Merchant didn’t rule out a second adaptation of “Portrait of a Lady,” because he and Ivory eventually want to complete a James trilogy, as they did with author Forster (“A Room With a View,””Maurice,” and Oscar-winner “Howards End”).

Meanwhile, Campion’s “Portrait of a Lady” will be produced by Polygram Filmed Entertainment subsid Propaganda Films and funneled through Polygram’s year-old distribution arm Gramercy Pictures (“Posse”).

Principals involved with the project declined comment. Campion was unavailable for comment.