Orson Welles famously sparked panic in America when he narrated a radio adaptation of H G Wells's The War of the Worlds, a news report of an alien invasion, so convincingly that the public began packing their bags in terror.

Now, 25 years after his death, the legendary film director will warm hearts as the narrator of a Christmas tale, recently discovered on reels that had been thought lost.

A rare recording of the filmmaker narrating a children's Christmas novel - thought to be Welles's last professional recording - is being used as the basis for the film Christmas Tails, to be directed by Todd Tucker.

More than 25 years ago, Robert Leeds self-published Christmas Tails, and in 1985, he enlisted his friend, Welles, to narrate it, making five reel-to-reel recordings.

The filmmaker died a few months later, and the recordings stayed on a shelf in a closet of Leeds's Las Vegas home.

In December 2008, Harvey Lowry, president of Drac Studios - best known as a special effects producer for films including The Curious Case of Benjamin Button - heard a rumour of the "lost tapes". He delved further, and some time later contacted Leeds, who confirmed the tapes' existence and verified their authenticity.

"This is a substantial find," said Mr Lowry, "something a filmmaker dreams of".

Welles was 26 when he directed Citizen Kane, scooping an Academy Award after eight nominations. By the age of two he had started reading; at seven he mastered the violin, and by 10 he was playing Shakespeare.

The tapes were so old, Mr Lowry said, they were placed in a chemical bath so they could be digitised.

Mr Lowry said he had already fielded interest from Hollywood actors by word-of-mouth alone.

"People see this as their last opportunity to act in a movie with Orson Welles," he said.

Welles's voice will be interspersed throughout the movie, much in the same way Boris Karloff's voice was used in the 1966 animated version of How the Grinch Stole Christmas.

The film will be a hybrid of 3D live-action and CG (computer graphics). Its plot focuses on Father Christmas's reindeer falling ill, forcing the bearded philanthropist to consider cancelling Christmas. It shouldn't reveal too much to say that with the help of Santa's dog there is a happy ending.

Drac, using its expertise in animatronic film animals, will create the graphical dog heroes and a fantastical North Pole.

The creative team has won Oscars for Bram Stoker's Dracula, as well as Mrs Doubtfire and Benjamin Button, and was nominated for Titanic and The Passion of the Christ among others.

Mr Lowry described it as "a movie about how Santa's dog saves Christmas, but on one level, this is also a story about the discovery of Orson's lost tapes".