Observant developers over at ValveTime have made some interesting discoveries which suggest Valve is working on Source 2, the next version of its almost decade-old game engine. The Source engine powers a number of titles like Vampire the Masquerade: Bloodlines, but it is utilized most notably by Valve properties such as Portal, Team Fortress 2, Left 4 Dead and Half-life 2.

Evidence to support Source 2 comes from Valve's very own Source Filmmaker, a free WYSIWYG movie-making tool that allows users to create videos using the same models, physics, textures and sounds found within the game engine.

A comment found in one one of SFM's python files provides the most certain evidence of Source 2's existence yet seen:

Return an str with the current engine version.
If key doesn't doesn't exist, assume 'Source', otherwise invalid -- assume next-gen 'Source 2'.

Source: Line 1387, pastebin.com

The file which contained this juicy tidbit, vproj.py, can be found in SFM's SDK tools, "../SourceFilmmaker/game/sdktools/python/global/lib/site-packages/vproj/vproj.py". Alternatively, readers may view a copy of it on Pastebin here

This also follows yesterday's discovery by a developer who stumbled across a line of this conscpicuously suggestive code. It was contained within a separate file of the SFM SDK as well:

Line 49:
returns a Path instance representing the %VCONTENT% path - path construction this way is super easy:
somePropPath = content() / 'ep3/models/characters/alyx/maya/alyx_model.ma'

Line 76:
_TOOLS = None
def tools( engine='Source 2' ):

Source: valvetime.net

Aside from the mention of "Source 2" in the above snippet of code, the inclusion of "ep3" and "Alyx" in a single line is of particular interest. Some believe it is evidence of Half-Life 3 -- a new, third episode of the franchise. "Alyx" likely refers to Alyx Vance, an NPC in Half-Life 2 who is portrayed as a close friend of Gordon Freeman, the primary protagonist. 

The last suggestion we have of Source 2 may be from Valve itself. "We don’t like to brag, but Source is considered the most flexible, comprehensive, and powerful game development environment out there. And it’s about to get even better."