The character began his life as the star of a trailer to a nonexistent Machete movie featured in 2007's Tarantino-Rodrigruez double feature Grindhouse.  That fake B-movie became a real B-movie co-directed by Rodriguez and Ethan Maniquis.  The over the top action tale, made for about $10 million, grossed $44 million globally, but Rodriguez pointed out in July that its performance on DVD is to thank for the possibility of sequels.

Now, Mike Fleming at Deadline reports that Rodriguez is teaming up with producer Alexander Rodnyansky on the sequel, with star Danny Trejo currently in talks to once again play the title role, an ex-Federale and one-man wrecking machine.  Assuming his negotiations pan out, the sequel would get underway this spring.

Says Rodriguez, "The fan response to the Machete character has been fanatical since his first appearance. Machete is truly a super hero and Machete Kills will be bigger and more ambitious than the first time.”  The story was developed by the director and Marcel Rodriguez, who then handed off scripting duties to Kyle Ward.

The Deadline report summarizes the Machete Kills story thusly:

"The new film finds Machete recruited by the U.S. Government for a mission which would be impossible for any mortal man. Machete must battle his way through Mexico to take down a madman cartel leader and an eccentric billionaire arms dealer who has hatched a plan to spread war across the planet with a weapon in space. Machete takes on an army in an effort to dismantle a plan for global anarchy."

You can see there with the space weapon how Machete Kills will lead into the third film, Machete Kills Again.  Apparently the first sequel will actually be preceded by a trailer for the third, which finds the hero killing people in outer space.

The first film included no small amount of stunt casting, including Don Johnson, Robert De Niro, Steven Seagal, and Lindsay Lohan.  I don't recall who in the ensemble actually survived that film, but Jessica Alba and Cheech Marin will presumably be back, along with Daryl Sabara and maybe even Michelle Rodriguez.