The Educating Rita actress will star alongside David Haig in the film, which will cover Mowlam's rise in the Labour party, her role in the Northern Ireland peace talks and her battle against brain cancer.
Channel 4 head of drama Liza Marshall said: "Mo Mowlam is one of the most inspiring figures of our recent political past and I can't think of an actress who could more powerfully capture her energy, wit and ultimately the tragedy of her situation than Julie Walters."
Mowlam died in 2005 from head injuries following a fall believed to be related to balance problems from her radiotherapy. She was 55.
Mo will air on Channel 4 in 2010.