The film is based on a book by American academic David Kertzer, with a screenplay by the playwright Tony Kushner.
When Edgardo fell ill as a baby, a Christian maid in the house sprinkled some water from a bucket over his head and baptised him.
The city's inquisitor, Father Feletti, heard the story and reported it to the Vatican, which ordered the boy's removal to the House of the Catechumens, the institution set up for Jewish converts.
Despite widespread outcry across Europe - the JC called the episode an "atrocity" - the Pope refused to return Edgardo to his parents and the boy grew up to be a priest.
Professor Kertzer said this week that the film "came about when Tony Kushner, several years ago, while working with Spielberg on the screenplay for Lincoln gave him a copy of my book.
"A month later Spielberg called me, saying he had read the book twice and thought it would make a great movie.
"Since that time Tony Kushner and I have had many long conversations about the book and the challenges of making a film based on it.
"Tony has already been through three drafts of the screenplay and it is terrific."
The film, Prof Kertzer said, would offer an "eye-opening view of a dramatic period of history.
"How many people today realise that the Inquisition was active in the second half of the 19th century? That Jewish children were torn away from their parents by papal police as recently as 1858?"
He hoped that audiences would not only learn some of the history but would also reflect on its contemporary relevance.
"This is the story of what happens when some people think that they have exclusive access to God's will and believe that all others are doing the work of the Devil," he said.
"It is a story that is all too relevant to much of the world today."
The incident, he said, "had a huge impact on public opinion in Europe and the US of the time. It played a significant role in ending the Papal States and making Italian unification possible, and it also played a huge role in creating a sense of solidarity and making for the first organisations of Jewish self-defence in the world Jewish community.
"Yet it is a story that before my 1997 book had largely been forgotten. Now, with the film, it is a story that will be known by millions of people who otherwise would be unaware of it."
Prof Kertzer said he was now hoping for a cameo role as a cardinal. But he insisted the part must be "non-speaking - I don't want to ruin the film".
