Life is Strange 3 is being developed right now by Deck Nine (devs of LiS: Before the Storm). It's being developed on Unreal Engine 4 rather than Unity. It's a full-fledged 5-episode sequel. I've heard that it's been referred to as "Life is Strange: True Colors" in development, but I'm not 100% sure if that's the final title.
The game takes place in the US, but not in the Pacific Northwest (I don't remember where for sure, but it either takes place in the Midwest or the South). The game will be a return to a grounded, small-town setting (similar to the first game). The main character is an Asian-American woman named Alex. The main superpower this game revolves around is the ability to read minds. Different characters will have colors surrounding them representing their emotions (hence the name True Colors).
Music is also a really heavy focus in this game, moreso than the original Life is Strange.
The game should be announced pretty soon. As far as I know, it was supposed to be announced last year, but COVID-19 must've messed things up.