Whether the next game in the series will be Diablo III or Diablo Online, it's clear from numerous hints and bits of information that such a game is being worked on by a full design team at Blizzard. No official word has yet been released, but it's widely accepted that a third game in the Diablo series was well underway at Blizzard North by 2003, when massive employee turnover and (rumored) quality problems with the title created major delays. A new team took over the project after Blizzard North was closed in 2005, and work continues at Blizzard Irvine.
This page compiles all publicly available information about the game, from rumors to official comments and denials, and you are encouraged to read the information here, follow the links, and come to your own conclusions.