The film will be a "Romeo and Juliet style tale" set against the backdrop of the Mexican Day of the Dead, Variety reports.
Del Toro has described the film, which will be computer animated, as "a colourful, vibrant, vital fable that utilises the animation medium in an incredible way".
Jorge R Gutierrez is set to direct the film, which is tentatively scheduled for a late 2014 release.
Along with production on Day of the Dead, del Toro is currently filming Pacific Rim starring Idris Elba.
He has also been rumoured to be in talks for a Beauty and the Beast live action film starring Emma Watson.
Watch the trailer for del Toro's Pan's Labyrinth below: