Andrew Adamson ("Shrek") is directing the ambitious hybrid project, which is being financed primarily by Cirque du Soleil and is already one-third completed.
Cirque du Soleil's various themed shows in Las Vegas are currently being captured in 3D, as the troupe's live performances will serve as the backdrop of a magical world where the film's lead character has been transported. The plan is for the movie to launch a series of family films that incorporate Cirque du Soleil's eye-popping performances into their storylines.
Adamson came up with the story for the first film, and is currently in New Zealand filming narrative sequences that will help shape the movie.
Reel FX Entertainment partners Cary Granat and Ed Jones are also producing along with Cirque du Soleil and Adamson's Strange Weather Films' partner Aron Warner.
Several studios have already been shown sample footage and are said to be interested in the project, which is expected to land a distributor before production wraps.
In addition to the two "Avatar" sequels Cameron will be directing, he's also producing two other high-profile 3D movies, including Fox's remake of "Fantastic Voyage" and Guillermo del Toro's adaptation of "At the Mountains of Madness" for Universal.
Adamson serves as an executive producer of "The Chronicles of Narnia: The Voyage of the Dawn Treader," having directed the first two installments of the popular franchise.