Called "Caught in Flight", the movie is thought to be the first big screen film about Diana, whose death in a Paris car crash in 1997 has been chronicled in several, mostly U.S., television movies.

Watts, last seen in "J.Edgar" and political movie "Fair Game", who was born in Britain and raised in Australia, said she was honored to be chosen. American newcomer Jessica Chastain ("The Help"), was previously attached to the project.

"It is such an honor to be able to play this iconic role. Princess Diana was loved across the world and I look forward to rising to the challenge of playing her on screen," Watts, 43, said in a statement.

Ecosse Films said the movie would chronicle the last two years of Diana's life and "how finding true personal happiness for the first time allowed her to achieve her defining successes evolving into a major international campaigner and humanitarian."

Media reports have said the movie will focus on Diana's secret two year affair with heart surgeon Hasnat Khan following her estrangement, and later divorce, from British heir to the throne, Prince Charles.

"Caught in Flight" will be directed by Oliver Hirschbiegel, who directed the 2004 movie "Downfall" about Hitler's last days. Production will start in Britain later this year.

At least one other feature movie about Diana is in the works. Preliminary titled "Diana", that film has been in development for some months and is based on accounts of Diana's life as a member of the royal family by her longtime bodyguard Ken Wharfe. No casting has been announced.

Diana, formally known as the Princess of Wales, was just 36 years-old when she died in August 1997, causing an outpouring of worldwide grief.

(Reporting By Jill Serjeant; Editing by Bob Tourtellotte)

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