The Mississippi-set show is to premiere in the spring of 2009 at the Alliance Theatre in Atlanta, Ga., Playbill.com reported.
King has written dozens of eerie tales, many of which have spawned hit movies. His book "Misery" was adapted as a stage drama, while "Carrie" was made into a musical.
Mellencamp is set to be inducted into the Rock and Roll Hall of Fame next month.
"It is John Mellencamp's musical style and it's Stephen King's gothic style, and I just thought it was too cool to pass up," Alliance artistic director Susan V. Booth told the Atlanta Journal-Constitution about the "Ghost Brothers" project.
"If it goes well in Atlanta, then we'll come to Broadway. If it don't go well in Atlanta, we're done," Mellencamp told Rolling Stone magazine.