Thompson's debut directorial venture will see Fanning play famous Victorian art critic John Ruskin's wife Effie Gray, Deadline reports.
Ruskin failed to consumate his marriage to Gray, leading her to fall in love with his protege John Everett Millais.
Fanning will be joining other cast members Julie Walters and Derek Jacobi, while Thompson's real-life husband Greg Wise will play the eccentric Ruskin.
Thompson is to appear as Lady Eastlake who becomes the young woman's confidant.
Fanning will next be seen in The Twilight Saga: Breaking Dawn.
The 17-year-old is also attached to the role of a teenage Princess Margaret in the film Girls' Night Out, which relates to the reportedly true antics of Margaret and Elizabeth Windsor on V.E. Night in 1945.
Thompson won an Academy Award for her 1995 screenplay adaptation of Jane Austen's Sense and Sensibility, as well as writing the hit Nanny McPhee.
Watch the teaser trailer for The Twilight Saga: Breaking Dawn - Part 1 below: