The series is about the origin of 1974's "One Flew Over the Cuckoo's Nest" character Nurse Ratched, famously portrayed by Louise Fletcher in the movie.
In the upcoming series, Paulson will star as the younger version of the malicious nurse.
Set in 1947, "Ratched" will chronicle Ratched's evolution from an average nurse into the monstrous authority figure she became in the novel and subsequent film. Murphy will serve as executive producer alongside the film's producer Michael Douglas.
According to Deadline, Netflix has given the project a two-season, 18-episode, straight-to-series order on the network.
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Romansky will executive produce the series, while Paulson will produce along with Paul Zaentz from the Saul Zaentz Company.
Produced by Fox 21 Television, "Ratched" is slated to begin production sometime in 2018.
"Ratched" marks Murphy's first series to air on a streaming platform.