Farrell, who plays at flyhalf for Saracens and inside centre for England, Wales flanker Sam Warburton and England captain Dylan Hartley were all in the mix to lead the Lions, Gatland told Sky Sports News in an interview.
The New Zealander, who names his squad on April 19, said the captaincy had become something of an "obsession" in the media but said Farrell's flexibility meant he filled at least one of the criteria for the role - being a likely starter in the tests.
"I know his name has been discussed," Gatland said. "The beauty of him at the moment is that he can cover two positions, 10 and 12.
"He's a great goal kicker, I think the way he has developed in the last three or four years, he is absolutely world class and I'm probably not giving too much away by saying he has a good chance of being selected."
Gatland said Farrell, who came off the bench in the deciding third Lions test in Australia four years ago, had not been at his best against Italy but apart from that performance had excelled in the Six Nations.
"He's a fighter, he's a winner and I just really admire the way he has developed as a player," added Gatland. "He is potentially in the mix to discuss (for the captaincy) as well."
Warburton, who skippered the Lions on the triumphant 2013 tour Down Under, did not lead Wales in the latest Six Nations but the flanker was among the tournament's top performers and Gatland said he was under consideration for the Lions role.
Read the full article on eurosport.co.uk: Owen Farrell in mix for Lions captaincy