The spinoff, which was leaked earlier today, will utilise Kinect and sees players use hand gestures and voice commands to cast spells and defeat enemies.
Fable: The Journey will be powered by Epic's Unreal Engine 3, which according to Molyneux, allows Lionhead Studios to create "a more beautiful, vivid and unique world full of dramatic moments".
In-game footage suggested that the Fable title will play as a Kinect-controlled, on-rails shooter.
Fable III was released by Lionhead Studios on Xbox 360 and PC.
Fable: The Journey will be available exclusively on Xbox 360 in 2012.
More coverage from Microsoft's E3 2011 conference:
> Halo 4 to start new Xbox 360 trilogy
> New Kinect Sports, Dance Central revealed
> Halo: Combat Evolved remake confirmed
> YouTube and live TV coming to Xbox 360
> Mass Effect 3 to feature Kinect support
> E3 2011: Microsoft conference live blog
Watch Fable: The Journey's announcement trailer below: