Russian director Andrei Konchalovksy (Runaway Train, Tango & Cash) co-wrote the screenplay with Chris Solimine, inspired by Tchaikovsky's classic ballet.
Tim Rice will write lyrics to eight new original songs based on the Tchaikovsky scores. The songs will be diverse in style, from Russian polka to a jazzy Busby Berkeley tribute.
Paul Lowin, who previously worked on UK feature Rollin' With The Nines, will produce. Mortiz Borman (Alexander, World Trade Center) will executive produce.
The 13-week production is shooting at Budapest's Stern Film Studios, where sets have recreated 1920s Vienna.
'I have been trying to make this film for a very long time and now that CGI and technical wizardry have come so far, I can finally realise my dream,' Konchalovsky said.
The cast will feature John Turturro, Nathan Lane, Elle Fanning, Richard E Grant, Frances de la Tour and Aaron Michael Drozin.
The $65m budget is privately financed and Target Entertainment will handle licensing rights (exclusing Japan). A winter 2008 release is expected but producers have been waiting to negotiate distribution deals.
Target Entertainment's director of international licensing Helen Howells, said: 'This deal marks a major step in the growth of Target Entertainment's licensing division and we are over the moon to have secured the licensing rights to this spectacular new movie. The storylines and vibrant characters provide a multitude of licensing opportunities and we can't wait to get started!'
The film was packaged with the help of CAA 's David Bugliari, Bart Walker and Tony Lipp.