The singer, who made her directorial debut in 2008 with Filth and Wisdom, plans to tell Simpson's story in Wallis, which would chart her love affair with English King Edward III, who gave up the throne to marry her.
Madonna is said to be lining up Blanchett for the lead role, while she is considering Dr Who star David Tennant to play Edward, according to British newspaper The Sun.
A source tells the publication, "The final script is now written and the locations have been scouted. Madonna is now trying to assemble the cast and put the finances in place. The first scene is an old woman in her nineties living on her own in a Parisian flat (apartment), she starts to tell her life story to a housekeeper and it turns out the woman is Wallis Simpson. There will be a song for every decade of her life."