The 65-year-old actor will lead the cast in director-and-writer Steve Pink's blockbuster remake of the low budget sci-fi movie, said the Hollywood Reporter.
The film centres on a high school student who is dumped in a vat of toxic waste but survives with one major side effect - he transforms into a superhuman monster upon contact with toxic chemicals.
Schwarzenegger is in talks to play 'The Exterminator', an ex-black ops agent who trains the titular character to hone and control his newfound powers and use them for good.
"Moviegoers around the world were thrilled when Arnold Schwarzenegger returned to acting so effortlessly filling the gap that he left behind. He is the ultimate action hero with a natural comedic versatility and will be pitch perfect in 'The Toxic Avenger'," said producer Michael Benaroya in a statement.
Schwazenegger's other roles include 'The Expendables 2' and 'The Last Stand', and he will next be seen in action thriller 'Ten'.