The new movie, titled "Dhokha" or "Betrayal," will mark the first time a Bollywood film has spotlighted alleged security force atrocities in the region.
"The film has been in my mind for quite some time now. Now is the time to start transforming it into reality," said Mahesh Bhatt, whose daughter, Pooja Bhatt, also a filmmaker and an actor, will direct the movie.
The film's subject has become an even more burning topic in the wake of the recent arrests of eight policemen over the killings of two men in custody -- one a Muslim cleric, the other a carpenter and father of five children.
Authorities are also investigating the deaths of three other civilians believed to have been killed in custody by police, who claimed they were militants, in exchange for cash rewards and promotions.
Indian Kashmir Chief Minister Ghulam Nabi Azad has vowed to use an "iron hand with those policemen responsible for the killing of innocents."
"The film deals with the demons inside the police force," said Bhatt, who is scripting the film and who has a track record for tackling controversial projects such as Hindu-Muslim riots.
Bhatt plans to film most of the movie in Mumbai but some scenes will be shot in the scenic Himalayan region which was a big attraction for tourists before the revolt erupted nearly two decades ago.
At least 44,000 have died in insurgency-related violence, according to the official count. Separatists say the death toll is at least double.
"Through this film I'll highlight the fact that if authorities don't control this menace, they'll sow the seeds of their own destruction," Bhatt told last week by phone from Mumbai, India's entertainment and financial capital.
Kashmiri model-turned-actor Muzamil Ibrahim will play a police officer who takes on enemies within the police hierarchy and exposes them. Bhatt is well known for casting newcomers in films.
Bhatt, who has set no release date yet for the film, said he has been pained by the alleged custodial deaths which have taken place in the region.
The killings have enraged Kashmiris, who have been holding anti-police demonstrations for weeks.
"The film touches on custodial deaths, similar to the alleged ones that have been unearthed in Kashmir recently," Bhatt said.
The movie will also deal with the "insurgency that can breed from state terrorism," he added.
Indian human rights groups say some 8,000 Kashmiri Muslims have disappeared since the revolt began, most after being detained by security forces who have broad powers of arrest in the Himalayan state.
Government figures put the number of missing at between 1,000 and 3,900.
"The film has an ending in which the bodies are exhumed, bad cops are punished and people see a ray of hope," Bhatt said.