Titled "Monkeys of Bollywood", the film based in Mumbai revolves around two monkeys who try to stop an ancient demon from conquering the world. The movie is said to be inspired by Indian epic "Ramayana", reports variety.com.
Chadha and her husband Paul Berges will produce the DreamWorks project.
"Excited about entering the world of Dreamworks animation...! (sic), " Rahman posted on his Twitter.
Broadway lyricist Stephen Schwartz is also attached to it.
"As soon as I heard that DreamWorks Animation envisioned making an animated Bollywood movie, I knew I wanted to be a part of it. The fact that A.R. Rahman got involved made it an even more exciting project, " Variety magazine website quoted Schwartz as saying in a statement.