Spielberg's spy thriller will feature Hollywood stars including Tom Hanks, Mark Rylance and Amy Ryan, as well as German actor Sebastian Koch.
A grant of €500,000 from the Film Board will be go towards the production costs at the Babelsberg Film Studios, south of Berlin.
Joel and Ethan Coen, the writers behind films like O Brother, Where Art Thou? and No Country for Old Men, have penned the script with British playwright Matt Charman.
The action will be set during the Cold War in Berlin and Moscow. To date it has been given the name "Untitled Cold War Spy Thriller".
Babelsberg, which has been the site of the film studios since 1912, has seen some of the biggest developments in German cinema and is the oldest large studio in the world.
It was the first German studio to build a sound stage, the Marlene Dietrich Halle, in 1926, which is still in use today.
Notable films shot there during the pre-war golden age of German cinema included Fritz Lang's Metropolis and Josef von Sternberg's The Blue Angel, starring Dietrich.
Under the Nazis and from 1946-1990 during the German Democratic Republic (GDR) period, only government-sanctioned films could be shot at the studios.
However, the 1975 production Jakob der Lügner (Jacob the Liar), directed by Frank Beyer, became the only GDR production ever nominated for an Oscar, for Best Foreign Language Film.
Since 1990 the studios have been overhauled and production of world-famous movies has returned, with blockbuster productions like V for Vendetta, The Bourne Ultimatum and Cloud Atlas passing through in recent years.
2014 saw the shooting of The Grand Budapest Hotel, directed by Wes Anderson, and The Monuments Men from George Clooney.
Shooting on Spielberg's new project is to begin at the end of 2014.