"James is in love. He says Emilia is the most amazing woman he's ever met," a website quoted a source as saying.
The duo was spotted at an art fair in New York last month, where Franco couldn't keep his hands off the 26-year-old actress.
"James and Emilia were holding hands. He kept kissing and hugging her. It was as if they'd known each other for years," the source added.
The 35-year-old split from his long-term girlfriend Ahna O'Reilly in 2011 after dating her for five years.
Franco said, "That relationship lasted about four or five years. We'd been living together in Los Angeles then I came to New York to go to school for two years. Then I signed up for more school at Yale. I think that was it for her."
The actor also confessed how he didn't have much luck with girls when he was growing up because he was so shy.
"I think girls liked me, but I was awkward, shy and emotionally immature, so I didn't have a ton of girlfriends. I had short-term relationships and always got dumped, I think because I was too slow for them," he added.