"The Little Mermaid" will be directed by Rob Marshall and written by David Magee, reports variety.com.
The upcoming film will incorporate original songs from the 1989 animated classic, as well as new tunes from original composer Alan Menken with lyrics by "Hamilton" creator Lin-Manuel Miranda.
Miranda is also producing the film along with Marshall, Marc Platt and John DeLuca. Jessica Virtue and Allison Erlikhman are overseeing for the studio.
In the original film, Sebastian is a Jamaican crab and advisor of King Triton and delivers one of the movie's most famous songs, "Under the sea".
Diggs broke out with his dual role as Thomas Jefferson and Marquis de Lafayette in the Broadway musical "Hamilton". He has made a transition to film, including the critically acclaimed "Blindspotting", which he co-wrote and starred in. He was most recently seen in the Netflix movie "Velvet Buzzsaw".