The story sees one group of the creatures try to convince another colony living in a department store that the world extends beyond the shop's walls.
Andrew Adamson will be in charge of turning British author Pratchett's books Truckers, Diggers and Wings into one film.
The "nomes", which are the centre of the story, will be animated using the same methods used in Shrek - but it is hoped that they will be placed in a real, live-action setting.
The story sees one group of the creatures try to convince another colony living in a department store that the world extends beyond the shop's walls.
"The intention is that the nomes will be as physical and real in the world as we are," Adamson told BBC News Online.
"What I hope for is that every time people walking out of the theatre see something out of the corner of their eye - they will think it is one of the characters from the movie."
Fantasy writer Pratchett was reportedly paid just under $1m (£699,484) for the rights to the novels by the DreamWorks film studio.
'Amazing style'
Jeffrey Katzenberg, who established DreamWorks with Steven Spielberg and David Geffen, described the film as a "natural extension" of the ideas behind Shrek.
"[Pratchett] has an amazing style and sensibility - his characters are very acerbic and very edgy and their point-of-view is hysterical. They see the whole world through this twisted, warped way," he said.
"It's very exciting and very original. Terry's come over and spent some time with us at the studio and we've got a very good story."
Katzenberg also worked on another film that placed a cartoon character in a real-life setting - 1988's Who Framed Roger Rabbit.
But the technology has moved on and Adamson will use the same computer-generated (CG) techniques on the Bromeliad as he did on Shrek.
Challenge
CG allows film-makers to create more realistic human characters and settings than ever before - with Shrek being only the fifth film made using such methods.
But Adamson thinks that, unlike with Shrek, it will be a challenge to condense Pratchett's three books into one movie.
"The book is so dense and we've only got 82 minutes to tell the story," he says.
"It's the opposite of Shrek, where we were expanding the story - in this case we have to take the best and most worthwhile elements and condense them down."
Pratchett's story will work well on the big screen, he says.
"Terry's an amazing writer and has an incredible way of taking things that we know and see on a daily basis and turning them around and showing them to us in a different way.
"So I'm pretty excited about getting into it."
Shrek, which features the voices of Mike Myers, Cameron Diaz and Eddie Murphy, has already taken almost $200m (£141m) at American box offices - putting it in the top 35 most successful films of all time after just one month on release.
It will appear in British cinemas on 29 June.
Pratchett, who lives in Wiltshire, has become one of the country's best-selling authors.
His books have sold more than 23 million copies worldwide and are outsold in the UK only by JK Rowling's Harry Potter series.
But Pratchett's novels are not best-sellers in the US and this film could mean a breakthrough into this huge market.