Titled Suicide Bomber, the Hindi movie will star Bhatt's son Rahul in the role of a young Asian Muslim planning to trigger the blasts in London.
"The movie is inspired by the London bombings and my son will make his film debut by playing the key role of the suicide bomber who is of Asian origin," Bhatt said.
He said the shooting had a Rupees 50 million budget and will start in June, adding "I am aiming for a December 2006 release."
The production will be set in London and India.
"I have been researching on the script since the bombings and through the movie I plan to highlight that Islam is a religion of peace and not dreadful as it is perceived by the world," Bhatt said.
"I will attempt to bring out the virtues of Islamic living and also show how the state (government) can sometimes be a demon. The film will delve into the heart and mind of a suicide bomber."
The July 7 attacks in the British capital targeted three underground trains and a double-decker bus, just as British Prime Minister Tony Blair was hosting a Group of Eight summit in Scotland.
The dead included four suicide bombers, all Muslims and three of them born and raised in Britain of Pakistani immigrant parents.