Although Dead Island 2 has been hiding in the shadows for quite some time, it is indeed still in development. Dead Island 2 was announced back in 2013, and since then, it's went through some changes, including, a change of developers. Dead Island 2 was originally under development, by Yager development and it was taken over by Sumo Digital back in March of last year. Since then, it's been radio silence for the most part, and it hasn't been very highly anticipated due to the lack of promotion.
Eurogamer reached out to publisher Deep Silver, and they confirmed that Dead Island 2 is still in development and that they are very proud of the progress they've made with it, even going to the extent of calling it their most successful "IP". Dead Island was a generally well-received game, and before Dying Light (made by the same developer as the original Dead Island), there was quite a bit of anticipation for the sequel. Due to the success of Dying Light and the years passed since the initial announcement of Dead Island 2, anticipation has faded. It's definitely a surprise to most that Dead Island 2 is in development, but it's definitely great news. I don't think the gaming community will ever complain about a well developed, well-funded zombie game.
Forget what Dead Island 2 looked like? Check out this trailer from 2014:
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