The pop icon won a Golden Globe for her performance on Murphy's other wildly popular FX series, American Horror Story: Hotel.
Production on the third season of FX's critical darling is set to bring this April with Season 3 set to arrive sometime in 2018; an official premiere date will be announced at a later date as will additional casting details!
FX confirmed on Monday that Penelope Cruz is going to play Donatella Versace in what is now being called Versace: American Crime Story.
Cunanan slayed five people that year before killing himself on a houseboat eight days after murdering Versace. Its second and fourth seasons will focus respectively on the fallout from Hurricane Katrina and the Bill Clinton-Monica Lewinsky affair.
This marks the USA television debut for Cruz, who won an Oscar in 2009 for Vicky Cristina Barcelona.
There was some speculation that Murphy might tap singer Lady Gaga for the role of Donatella.
The first series, The People V OJ Simpson, aired a year ago and picked up accolades at the Golden Globes and the Emmys.
"No, she will not [play her]", Murphy told reporters in January.
Edgar Ramirez has already been cast as Gianni in the 10-episode series, while Darren Criss will play serial killer Andrew Cunanan, who shot the designer on the steps of his mansion in Miami. So I just don't think with her schedule, I knew that it would never had worked.
The limited series show, created by Ryan Murphy, centers each season around a famous true crime - the first season was the award-winning "The People v. O. J. Simpson"; the second season, now in development, focuses on the aftermath of Hurricane Katrina.
She has also been a muse for Pedro Almodovar, starring in some of his best work like 2006's Volver.