After M. T. Vasudevan Nair completed the screenplay of Panchagni, Hariharan decided to produce the film himself under his company Gayathri Cinema. During the pre-production of the film, G. P. Vijayakumar telephoned Hariharan and informed his wish to produce a Hariharan-M.T. Vasudevan Nair film under his newly formed production company, Seven Arts. Hariharan agreed and hand over the production to Vijayakumar. Initially, Naseeruddin Shah was cast in the role of news reporter Rasheed, per the suggestion of Nair. Shah signed the film and was given advance payment. Later, Mohanlal met Hariharan informing his wish to act in their film, but the casting process was already over by then, so he had to return him. But after that meeting, Hariharan had a change of mind with the thought of casting him in the role of Rasheed, he talked the matter with Nair and Mohanlal was fixed. In a later interview in 2000, Hariharan recalled: "when we asked Mohanlal whether he would do the film, he said he would do 'any role'. The first thing I wanted was to give him a different appearance. Till then, he hadn't appeared without a moustache. So I asked him to shave it off. He immediately agreed. Panchagni went on to become a turning point in his career". Initially, Ambika was chosen for the role of Indira, but she could not sign the film due to scheduling conflicts with a Kannada film, which she later regrets. Geetha was finalised for the role. Ambika said in a later interview in 2017 that Panchagni and Chithram are the two films in her career that she feels sad about that she could not join.
