The entertainer, a female impersonator who went from being a nightclub turn to a household name known by millions, died in 2009 at the age of 81.
The project is being developed from a screenplay by Martyn Hesford, who wrote Fantabulosa!, the BBC4 biopic of comedian Kenneth Williams.
La Rue – born Daniel Patrick Carroll – was once described by Bob Hope as “the most glamorous woman in the world”.
He was hailed as a ground-breaking star as he took his drag act into the mainstream and was the first female impersonator to perform for the Queen at the Royal Variety Performance.
The film will look at key moments during his life and examine his “complex web of relationships” with his manager and partner Jack Hanson and his close companion and costume designer Annie Galbraith.
Production company Leopardrama has the backing of the BFI Film Fund.
Executive producer Joey Attawia said: “Danny was a ground-breaking entertainer and a vital part of contemporary British popular history, which until now has been overlooked.
“He had a huge cultural and social impact in making the unacceptable acceptable and blazed the trail for the likes of David Bowie and Boy George.
“He is an important figure who broke the mould and we’re thrilled to have signed agreements with Annie Galbraith and other key intimates of Danny to bring this funny, moving and complex story to life.”
La Rue made his name as a cabaret star before opening his own nightclub in 1964, attracting more than 13,000 members.
He went on to star in a string of hit West End shows and was a regular on TV shows such as The Good Old Days.
He took part in more than 50 pantomimes and he also toured nationally with his Danny La Rue Show to box office success.