E! said Sandra Bullock had been in talks for the role, but decided to pass.
Diaz' casting as Miss Hannigan was announced Thursday.
Will Smith and Jay-Z are producing the film, which will co-star Jamie Foxx as a Daddy Warbucks–like billionaire character and Oscar-nominated child actress Quvenzhane Wallis as the adorable titular orphan.
Diaz' big-screen roles include "The Mask," "My Best Friend's Wedding," "Gangs of New York," "Vanilla Sky," "Charlie's Angels" and "Bad Teacher."
E! said "Annie" will mark her first big-screen musical.