The British actor will play Gabrielle "Coco" Chanel in the film to mark the French fashion house's 100th anniversary. It will be filmed in the chic seaside town of Deauville, where the first Chanel boutique opened in 1913, financed by her lover Captain Arthur "Boy" Capel, a wealthy British aristocrat.
The cast also includes model Stella Tennant and actor Tallulah Harlech, daughter of Lagerfeld's longtime friend and collaborator Lady Amanda Harlech.
Lagerfeld, Chanel's head designer, has ordered the building of "detailed retro sets" in the seaside resort where, in the days before she became an international success, Chanel used to send her sister, Antoinette, and aunt, Adrienne, to parade through the streets wearing her creations to attract customers.
Knightley, 27, is the face of the brand's Coco Mademoiselle perfume campaign, for which she was handpicked by Lagerfeld, who has described her as one of his muses. The designer is rumoured to be working on the actor's wedding gown for her marriage to James Righton.
"Karl's amazing. He's an avid reader, and he speaks about five different languages, so he'll be rattling off in English to you and in French to someone else, and in German to someone else and then the phone rings and he's speaking in Italian," Knightley said recently.
The film – which will also feature French actor Clotilde Hesme as Adrienne, as well as model Brad Kroenig and his four-year-old son, Hudson, who is Lagerfeld's godson – will be screened at Chanel's Cruise Show in Singapore in May.
Lagerfeld, who is in his 70s but refuses to give his birth date, is known for his disciplined approach to projects, including his hobby, photography. He has published several books of photographs and in 1996 was awarded a cultural prize from the German Society of Photography.
Although he played himself in the 2006 film La Doublure, it is thought to be the first time he has been the other side of a movie camera.
He was awarded France's highest honour, the Légion d'honneur in 2010.
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