Terraria spin-off Terraria: Otherworld has officially been cancelled by developer Re-Logic.

A statement explains that the game was very far off from meeting the expectations and goals they had for the project, and pursuing that would get in the way of other projects the developer wants to focus on.

As for the future of the series, a proper sequel is of course still up in the air, and development still continues on the original with patch 1.3.6 actively being worked on.

Source: Terraria Forums