The filmmaker has spent more than a decade trying to get the picture into production but the project has been dogged by disasters from the outset.
He revived the movie, originally titled The Man Who Killed Don Quixote, earlier this year (10), casting Star Wars actor Ewan McGregor to take over from first choice Johnny Depp, who was forced to quit the job due to scheduling conflicts after the initial string of delays. Robert Duvall is set to replace French star Jean Rochefort as Quixote.
However, last month (Aug10) Gilliam revealed Don Quixote had been thrown into jeopardy once again, claiming the latest setback was down to a "little financial hiccup".
Now the director has revealed the trouble facing the project is a lot more serious than he let on.
He tells Variety, "The financing collapsed about a month and a half ago... The plan was to be shooting Quixote right now."
But Gilliam insists the movie will still be made.
He says, "Robert Duvall is Quixote, Ewan McGregor is also there, and we are looking for new financing right now.
"Don Quixote gives me something to look forward to, always. Maybe the most frightening thing is to actually make the film."