Beyond Good and Evil 2 is definitely happening and, according to creative director Michel Ancel, was never actually canceled.
The game is completely in full-scale development, as Ancel has said in an interview with Kotaku, that Ubisoft is taking it “very seriously”:
“Even on Beyond Good and Evil 1 it was supposed to have space travel and all these things but we were limited.”
“The big thing that is really cool is that the consoles are now so powerful […] The amount of memory the CPU has, you can do those things now. It’s not ‘Oh, we will never do it.’ It’s working.”
“I’ve been working on [Beyond Good and Evil 2] for a long time, on the technologies that allow you to create those kinds of games – tools to draw the big planets and things like that.”
“We’re confident on the quality and that we can achieve that kind of game.”
Those are some promising words from a man who is obviously very passionate about his game. Hopefully that is reflected in the game’s quality.