Rob Marshall is directing the untitled movie, which will be set 20 years after events in the 1964 title, said The Hollywood Reporter.
The first film starred Julie Andrews and Dick van Dyke.
The sequel will also take its cues from the book series that PL Travers wrote.
The original Mary Poppins pic was based largely on the first book, published in 1934; the last book in the series was released in 1988.
32-year-old Blunt's name surfaced almost immediately as a top contender for the role when news of the project broke last September, but it's only now that talks are underway in earnest.
Disney and Marshall are developing a brand-new live-action musical.
The story is set in Depression-era London and revolves around a now-grown Michael Banks, who has children of his own. In tough times, big sister Jane returns and soon after, their beloved Mary Poppins comes back to help.
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