The actress, 53, posted the picture on Sunday, which showed her Romancing the Stone star beau holding a cute baby girl in his arms and looking at her affectionately. Catherine wrote: "Happy birthday Lua Douglas!!"
WATCH: Catherine Zeta-Jones treats fans to rare piano performance
Fans may have been mistaken for thinking the tot was a new addition to Catherine's household, but in fact little Lua, now age five, is the actress' step granddaughter and daughter of Michael's son Cameron.
Michael Douglas with granddaughter Lua
Cameron is 78-year-old Michael's only child with his first wife Diandra Luker; the former couple were married from 1977 until 1995. He has two half-siblings – Dylan Michael, 20, and Carys Zeta, 17, from Michael's marriage to Catherine.
Cameron is now with partner Viviane Thibes and the couple are proud parents to their two young children, Lua Izzy, five, and Ryder, two.
The doting dad shared a few photos on his own Instagram Stories of Lua's big day.
Cameron with his daughter Lua
In one snap, we see Cameron kneeling down to chat with Lua and he captioned the picture, "Happy birthday my Princess," with a yellow heart emoji.
The photos show happy scenes in the Douglas home, which come after a difficult period of time for Cameron.
The actor, 44, was previously sentenced to five years in prison for drug-related offences in 2010, but his term was extended further after he admitted to smuggling drugs into jail. He was placed in solitary confinement from 2012 until 2014 and was released to a halfway house in August 2016.
Actress Catherine Zeta-Jones
On 14 December, Catherine sparked a sweet fan reaction after she penned a heartfelt tribute to her stepson, Cameron.
To mark his birthday, the Chicago star posted a pair of touching photos shining a light on their close bond. Catherine noted in the caption: "Happy Birthday to my amazing stepson @cameronmorrelldouglas Love you always Cam," followed by a red heart emoji.
Like this story? Sign up to the HELLO! Family Hub newsletter to get other stories like this delivered straight to your inbox.