Pacino's character is said to be a nemesis to the lead character Gru (Steve Carell) in the animated sequel, reports Deadline.
The news comes after Javier Bardem dropped out of the sequel in January. He was in talks to play a villain.
It is not yet clear if Pacino is replacing Bardem in Despicable Me 2 since Pacino's role is being kept secret.
Despicable Me was released in 2010 and told the story of the villainous Gru, who uses three orphan girls as pawns for his plan to defeat a new villain, Vector (Jason Segel).
Carell and Segel will return to reprise their characters.
Despicable Me 2 is set to open in theatres on July 3, 2013.
Watch a trailer for Despicable Me below: