Tusk, which will reportedly go into production in September, is inspired by an online ad from a Brighton homeowner offering free rent to anyone who dressed up as a walrus for two hours a day.
The man had befriended a walrus called Gregory while living in Alaska and created a "realistic walrus costume" which should fit "people of average proportions".
The advert, which was pulled down after going viral, inspired Red State director Smith to write a Human Centipede-style horror movie.
"The listing was written eloquently and briefly mentioned that the writer had once been lost at sea, with a walrus he nicknamed Gregory as his only companion," Smith wrote on his Facebook page.
"The listing got my creative juices flowing and I began reconstructing the whole thing as an old British Hammer horror film, in which a mad scientist intends to sew some hapless lodger into counterfeit blubber, creating a chimera in an effort to answer the ultimate riddle."
Smith began developing the script for Tusk with his producer Scott Mosier, after the pair mentioned it in their podcast in June.
Quentin Tarantino and Michael Parks - the star of Smith's Red State - are being lined up for roles in Tusk.
Watch Kevin Smith talking to Digital Spy about Red State below: