Around three years ago Re-Logic announced the next step for the Terraria franchise in the form of Terraria: Otherworld. It was meant to be set in an alternate dimension to the original game, and players would have to try to rebuild the world around them. However, Re-Logic has confirmed that Terraria: Otherworld has been cancelled with a major reason being that it was far behind its development schedule and that it was not meeting the quality that the developers desired.
The company stated that the announcement for Otherworld should not have been made as early as it was, that outsourcing development for some aspects was a mistake and that going forward all work will be internal, and a lot of things developed for Terraria: Otherworld will likely be used in future titles.
Source: Terraria Forums