The upcoming drama follows Larson as a counsellor for troubled children in a foster home, who comes from a difficult past herself, reports Deadline.
Destin Cretton is set to direct the movie, which is based on a short film he made that won the Jury Prize for 'Best Short Film' at Sundance in 2009.
"I seriously don't know what to say," Cretton said during his acceptance speech. "I want to thank everybody who worked on the film. Everybody worked for free and I'm just really grateful for all my talented friends."
The Short Term 12 script was also awarded the Nicholl Screenwriting Fellowship.
Larson previously starred in last year's comedy 21 Jump Street and played Toni Collette's teenage daughter on Showtime's United States of Tara.
Earlier this summer, she joined the cast of The Spectacular Now and Joseph Gordon-Levitt's directorial debut Don Jon's Addiction.
Watch the trailer for 21 Jump Street below: