The movie will be based on a ride at the Disneyland theme park, which has also launched the Pirates Of The Caribbean series and Guillermo del Toro's upcoming Haunted Mansion.
Favreau previously steered children's movies Elf and Zathura.
Disney reportedly sees Magic Kingdom as its answer to the Night At The Museum franchise.
Battlestar Galactica's Ronald Moore had been working on a script for a Magic Kingdom film but Disney shelved the idea and is starting afresh.
Favreau recently completed filming on Cowboys & Aliens with Daniel Craig and Harrison Ford. He will next tackle a third Iron Man movie, due for release in summer 2013.