BAZ Luhrmann has signed a deal to remake one of the most iconic movies of all time, The Great Gatsby, in Sydney.

In a coup for the Australian film industry and the NSW government of Kristina Keneally, Luhrmann has brushed New York - where the classic tale is set - and will instead shoot a 3D version in NSW.

The Sunday Telegraph can reveal the State Government signed off on a production deal with Luhrmann early on Friday morning.

Luhrmann has already secured Leonardo DiCaprio to play Jay Gatsby in the F. Scott Fitzgerald story, one of the film industry's most anticipated projects.

It will be the first time Luhrmann and DiCaprio have worked together since the Oscar-nominated Romeo + Juliet in 1996.

DiCaprio, who commands $20 million a movie, will reprise the role made famous by Robert Redford in 1974, with 25-year-old British actress Carey Mulligan as Daisy Buchanan, played by Mia Farrow in the original.

Tobey Maguire is tipped to play young bachelor Nick Carraway, rounding out an all-star cast.

The production will provide a much-needed boost to the struggling local film industry.

It's also a gamble for Luhrmann, whose last movie, Australia, was a box-office flop internationally and who needs another hit like Romeo + Juliet and Moulin Rouge (2001) to his name.

The Warner Bros-backed film will be produced at Sydney's Fox Studios and will be the first live-action 3D movie shot in NSW.

Filming will begin in August and last 17 weeks before 30 weeks of post-production.

Luhrmann and his wife Catherine Martin will re-create famous New York and Long Island landmarks from the 1920s.

The tale of doomed love has been filmed six times, the most famous being the 1974 Francis Ford Coppola-penned version starring Redford and Farrow.

Mulligan, who beat Gossip Girl star Blake Lively and Amanda Seyfried for the role, burst into tears when Luhrmann phoned her and said: "Hello, Daisy Buchanan."

Before he signed a deal to bring the movie to Sydney, Luhrmann, who is in the US, had been tipped to choose New York or possibly Europe to shoot the film.

Premier Kristina Keneally said the deal would inject more than $120 million into the NSW economy.

Ms Keneally said it had come at a good time for the local film industry, which had suffered from the strong Australian dollar.

With the location set, Luhrmann will begin pre-production as early as next month.