The country legend has always wanted to work with the 'Like a Prayer' singer, and thinks their styles would be a good match.
She told The Sunday Times newspaper: "I'd love to do a duet â always wanted to work with Madonna, but she never asked."
She added that either Madonna or Lady GaGa would be: "The perfect fit. Im as outrageous as they are. I was gaudy before they were gaudy."
Dolly is no stranger to the young stars of today and has also previously said she would love to star on a song with musician Jack White, and met rapper Tinie Tempah, who introduced her to his mother, Rosemary.
A source said: "Tinie has been a big fan of Dolly's since he was a little boy. He was on tour but arranged for his mum and sister Kelly to spend some time with Dolly.
"Rosemary invited Dolly along to see Tinie in concert. Dolly said she'd love to go.
"She said she would be up for talking about a collaboration and said Tinie would crack America no problem at all."