The Blowin' in the Wind singer is working on a low-budget production with Grateful Dead lyricist Robert Hunter.
The 67-year-old musician first collaborated with Hunter on his 1988 album Down In The Groove and 10 of the 11 tracks on his latest album Together Through Life - which was released on Wednesday - were co-written by the rock lyricist.
Dylan said: "Hunter is an old buddy. We could probably write a hundred songs together if we thought it was important or the right reasons were there. "He's got a way with words and I do too. We both write a different type of song than what passes today for songwriting. We'll be writing a couple of other songs too, for some off-Broadway play."
Dylan is not the only major artist working on a musical. A Spider-Man show written by U2 stars Bono and The Edge is due to debut on Broadway next year.
Spider-Man: Turn Off the Dark will open in the New York theatre district from February 18, with previews starting from January 16. The musical extravaganza is set to be the most expensive production in Broadway history, with total costs expected to exceed $40 million. It would have to run successfully for 8,000 years to break even.