"The evangelical community considers The Passion the biggest movie ever out of Hollywood, and they kept telling us that they think a sequel will be even bigger," Wallace told THR.
Gibson co-wrote and directed the original film, which went on to be the most successful independent film of all time.
Wallace, who studied religion at Duke University, previously partnered with Gibson for the 1995 Best Picture Oscar winner, Braveheart. Wallace was also individually recognized with a nomination for Best Original Screenplay at the Oscars that year.
While Wallace told THR it was too early to discuss financial backing for the film, he revealed that he and Gibson started seriously contemplating the sequel while making the upcoming World War II drama, Hacksaw Ridge, which opens in November. The Passion sequel will reportedly focus on Christ's resurrection.
Gibson's rep did not comment to THR on the Oscar winner's involvement in the project.
Wallace most recently directed and co-wrote the faith-based film, Heaven Is for Real, starring Greg Kinnear and Thomas Haden Church.