The $11.7m (Euros 9m) co-production between Munich-based blue eyes fiction, animation and VFX specialist Trixter, Studio Babelsberg and Austria's DOR-Film, will be a combination of live action and animation and start shooting from the beginning of June at locations in Austria and Germany, including Babelsberg Studios.
Ruzowitzky's screenplay is based on the internationally successful children's books by Knister about the 10-year-old Lilly and her adventures with an animated dragon Hector.
blue eyes fiction's managing director Corinna Mehner told Screen that the feature film will be 'quite different' from the Lilly The Witch animation TV series which Trixter has produced for WDR and the BBC.
'The stories there are geared to a younger audience even than the original books, ' she said, adding that this first feature will be targeted at 4-12 year olds and could lead to the development of a film franchise.
Mehner revealed that negotiations are currently underway with Buena Vista International to release the film in Germany and Austria.
Meanwhile, blue eyes is also developing the Zarah Leander biopic Zarah L., to be directed by Holland's Ben Verbong from a screenplay by Regine Kuehn, which will shoot in Berlin, the Babelsberg Studios and Sweden in autumn 2008.
Currently in postproduction on the international co-production of Milcho Manchevski's Shadows (Senka), blue eyes is also in development on an updated version of the Wilhelm Hauff's children's fairytale Der Kleine Muck which is being written by Regine Kuehn.