If there's an iota of truth to this report and if it does come true, then we are beyond, beyond thrilled!
Though Devaraagam got lukewarm reception by critics (a strong opening but then a fizzle out at the box-office!), the movie had divine songs and Sridevi looked spectacular in the film and acted, as expected, well.
Sridevi has had a long, long association with Malayalam films, having starred in many movies as a child artist and as a teen. When she became the biggest name in Bollywood, truth-be-told, she was simply unaffordable for the more humble budgets of the Kerala film industry. Malayalam films, which win a huge chunk of National Awards are renowned for their dramas, stellar acting, bucolic charms (well, the good ones anyway!). We are unfamiliar with the new-age modern films of the region but this sounds interesting and ripe for the acting prowess of the doyenne of Indian cinema. Please dear God let this movie be made, and made well.
Update: Though we just saw the newsbyte, TOI reported this back in November 2015. Hmm. Lets see what comes of it! A cameo or a full fledged role?!