The project is being fast-tracked for a July shoot and the producers are in talks to film in New Orleans.
Nu Image/Millennium is financing and handling international sales on the project, which is styled as a post-9/11 update of Pressman Film Corp's 1992 tale of a self-destructive detective.
Abel Ferrera directed and co-wrote the original, which earned Harvey Keitel an Independent Spirit Award for his performance as a drug-addled, gambling sex addict who investigates the rape of a nun.
The new version is based on a screenplay from William M Finkelstein, a seasoned television writer whose credits include LA Law and NYPD Blue, and gives the conflicted officer a name - Terence McDonough - as he investigates the killing of five Senegalese immigrants.
Pressman is producing with Stephen Belafonte, who attached Finkelstein to the project, along with Alan and Gabe Polsky.
Nu Image/Millennium Films' Danny Dimbort, Avi Lerner, Trevor Short and Boaz Davidson are serving as executive producers along with Elliot Rosenblatt, Alessandro Camon and Randall Emmet.
'In the spirit of the original, we really wanted this to be a director's piece,' Pressman said. 'And we couldn't be more thrilled with the explosive combination of Herzog and Cage as they explore the depths of human depravity and moral ambiguity that is unique to this character.'
'Bad Lieutenant is one of my all time favorite films,' Lerner said. 'I am pleased to be working with Nic Cage, Werner Herzog and Ed Pressman. Their updated take on such a brilliant film is sure to be a hit with today's audience. This all makes for a winning combination.'
Herzog is represented by David Gersh and Cage is represented by CAA, which is also handling domestic rights.