The sequel, titled City of Men, which is also the name of the television series spun-off from the first film, was directed by Paulo Morelli and is currently in post-production. From the synopsis that I've seen, it basically looks like either a continuation or remake of the show, as it follows its main characters, Laranjinha (Darlan Cunha) and Acerola (Douglas Silva), both of whom were also the focus of Meirelles' and Lund's short film Golden Gate (Palace II).
So for those doing the math, it seems that City of Men is actually based on a show that was based on a feature film that was based on a short film. Except, maybe we should actually eliminate the feature film part of that equation. Since Cunha and Silva (and other actors from the show) didn't play the same characters in City of God, that film has nothing to do with the rest of these things, and is possibly only related for marketing purposes.