Gyllenhaal, 37, will play Eileen Merrell/Candy, a veteran with an entrepreneurial bent who is drawn into the fledgling adult film industry, said The Hollywood Reporter.
The HBO pilot also stars James Franco, who serves as a producer in the long-in-the-works project, which is expected to begin filming in New York in October.
Michelle MacLaren, of "Breaking Bad" fame, will direct the pilot.
"The Deuce" follows the story of the legalisation and subsequent rise of the adult film industry in New York starting in the early 1970s and continuing through the mid-1980s.
"The Deuce" is inspired in part by the career of twin brothers who were players in the Times Square world and became fronts for mob control of the volatile and lucrative adult movie industry from its beginning.
The drama is being written by Simon and Pelecanos, with Nina K Noble and Richard Price involved as executive producers.
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