Star of the film Robin Williams is apparently set to reprise his role, with Elf writer David Berenbaum writing the script.
According to The Hollywood Reporter, a sequel had been in the works since 2001, but was put on hold for years until recently.
In the original 1993 comedy, Robin plays Daniel Hillard, a struggling voice actor and divorced father who disguises himself as an elderly housekeeper in order to see his kids while his ex-wife has custody.
Daniel uses prosthetics, a wig and a dress to get into character as beloved Scottish nanny, Euphegenia Doubtfire.
Sally Field, Pierce Brosnan and Mara Wilson also starred in the Golden Globe-winning film, which was a huge box office hit, taking a total of $441m (£262m).
Original director Chris Columbus is also said to be returning for the sequel of the Fox 2000 production, but details on the plot have yet to be revealed.
Robin, 62, is currently starring in CBS sitcom The Crazy One as Simon Roberts. He will soon be reprising his role as Teddy Roosevelt in A Night at the Museum 3.
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