The Family Guy creator is planning to direct and star in the Western comedy as a follow-up to Ted, according to The Hollywood Reporter.
The film has been compared to Blazing Saddles, promising a classic Wild West setting combined with contemporary humour.
Media Rights Capital is backing the project, although the deals are yet to be completed at this point.
The Mark Wahlberg-starring Ted was MacFarlane's directorial debut on a live-action feature. A sequel to the summer's surprise hit is in early development.
A Million Ways to Die in the West is yet to secure a distribution deal.
MacFarlane will be the host of the Oscars ceremony in February.
Watch the 'red band' trailer for Ted below: