The Anna Karenina star is to feature in a movie directed by Chanel's head designer Karl Lagerfeld to celebrate the centenary of the French fashion house.
In typically extravagant style, Lagerfeld has ordered the construction of detailed retro sets to recreate the seaside resort town of Deauville, where Coco Chanel opened her first boutique in 1913.
The fashion designer is also rumoured to be working on the Oscar-nominated actor's wedding dress for her forthcoming marriage to Klaxons' keyboardist James Righton.
Speaking of Lagerfeld, Knightley said: "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,"
The short film will focus on Chanel's early life, in the days before she became head of a multi-million pound fashion house.
It is believed that the film will be shot in Paris with Lagerfeld trying to recreate Deauville, the small seaside town where Chanel was born.
Knightley is reported be setting off to Singapore, where the film will be screened later this year when Chanel reveals its next fashion collection in May.
French star Clotilde Hesme is taking on the role of Chanel's aunt, Adrienne. Other actresses set to appear in the film include model Stella Tennant.
Knightley is already the face of the Coco Mademoiselle perfume campaign, in which she was specifically requested by Lagerfeld, who has praised the British actor, calling her one of his muses.
The Coco Mademoiselle advert has attracted criticism from parents, who condemned it as too sexually explicit.
The commercial was banned during children's programming after receiving complaints that it was aired during a screening of the cartoon Ice Age 2, which has an audience of families and young children.
Chanel, however, pointed out that there was no nudity in the ad and the character that Knightley plays only briefly reveals her shoulders as part of the photo shoot.
The Advertising Standards Authority said: "We noted that the photographer was directly involved in unzipping the actress's garments and that there was a suggestion that she was naked aside from a bed sheet."
"We also noted that there was clear sexual tension between the pair and that they appeared about to kiss on the bed. We considered the ad was suitable for older children, but that the sexually suggestive material was unsuitable for young children."