The actress will perform an item number for the movie, which was originally offered to Rani Mukherji, The Times of India reports.
A source told IANS: "Lolo's association with Sajid is very old. The duo have worked together for films like Jeet and Judwaa. Sajid and Lolo are still in touch. So after Rani refused, Sajid thought of Karishma who looks as sexy as she was earlier."
The 36-year-old actress took a break from acting after her marriage to industrialist Sanjay Kapur in 2003.
She was last seen in the film Mere Jeevan Saathi in 2006 and made a guest appearance for the title song in Om Shanti Om.
Kapoor has also signed for Vikram Bhatt's 3D horror film Dangerous Ishq.