The actor-turned-politician put the project on hold in May after a scandal broke out about the lovechild he fathered with his housekeeper.
The western centres on a man who is forced to decide whether to have one last battle when disruptive strangers arrive in his town.
A Lionsgate studio executive told Deadline: "It's a property which a zillion directors fell in love with: the good, the bad, the weird.
"It's an old-fashioned Western specifically designed for a 63-year-old broken-down guy with a moral decision - whether Arnold decides to stand up for his town. We always needed an iconic figure for it."
Another industry figure said that Schwarzenegger's performance in The Expendables had "electrified" audiences, despite the fall-out from the star's personal life.
Liam Neeson was attached to the leading role before Schwarzenegger expressed an interest, the site claims.
Schwarzenegger is reportedly keen on meeting the child he fathered with Mildred Baena, following his wife Maria Shriver's decision to file for divorce.
Watch Arnold Schwarzenegger in The Expendables below: