The movie star admits he was upset when publicists played down reports that the tragic princess was considering the movie role - because it made him look foolish for telling a reporter the film project was in the works.
In a taped interview with U.S. newsman Anderson Cooper, which will air in America next month (May12), the Dances With The Wolves star reveals he and Diana had a number of conversations about the film - and she was "interested" in becoming his leading lady.
But Kensington Palace bigwigs didn't want the story spreading.
He recalls, "Some people said, 'That's not true, that's not true' and kinda dissed me a little bit... I called them up, I said, 'Don't do that, 'cos it's true'."
Costner also reveals the second draft of the script was completed just three days before Diana's car crash death in 1997 - and she never got the chance to read it.
He says, "It was quite good."