The pair met in 2004 when they co-wrote 'That's Me Trying' for William Shatner's Has Been LP.
Songwriter Folds told The Sunday Times that the album features 12 Hornby-penned tracks and is currently half-finished.
Folds said: "I asked Nick if he'd be interested in kicking out enough lyrics for an album. He sends lyrics by email.
"When I have a moment I stare at them until I head a song. My rule is not to revise Nick's lyrics."
Writing on his blog last October, Hornby said: "My writing partner seems confident enough to have talked about it already, and if he thinks something will come of it, then (deep breath) so do I.
"There are bits of paper lying all over the place, and sometimes I have a stab at a couplet while making the tea, or watching Arsenal beat Bolton. I suppose that’s what Dylan must do, although I have no idea who he supports."
Hornby released the record-shop set novel High Fidelity in 1995 and included Ben Folds's 'Smoke' in his 2003 collection of essays 31 Songs