Variety says that the singer has decided to both co-write and direct W.E., about the relationship between Simpson and King Edward VIII which led the royal to abdicate.
Reports about Madonna's interest in a film about Simpson first emerged a year ago, and the singer has reportedly written to the Queen to ask for her permission.
However, she has allegedly decided not to play Simpson herself and Up In The Air star Vera Farmiga is said to be lined up for the role.
Although King Edward VIII has not yet been cast, previous reports have suggested that Madonna wants David Tennant to take on the part.
W.E. will be the second film the singer has directed after the 2008 movie Filth And Wisdom, which was panned by critics.