According to a spy at Vulture, "This is definitely not a PG-13 movie. They're not f*cking around with this: It's 'Go big or go home.'" The site backs this up by describing a scene from the script:
One scene has a character opening the wrong door at the "Puppet Pleasureland," and finding a cow puppet on a massage table having all of its teats milked by an octopus puppet. Reads the stage direction: "The cow MOOS in ecstasy. MILK is just SQUIRTING EVERYWHERE."
Go big or go home indeed. Except, as a number of comments astutely pointed out when the news first broke, Hobbit-savant Peter Jackson already made a puppet movie filled with drugs, violence and sex called Meet the Feebles (Not to mention the more recent marionette raunch-fest Team America: World Police). To be fair, this new project ups the ante a bit by throwing humans into the mix. But still, check out the NSFW trailer for Jackson's film below and let us know whether you think there's room for another R-rated puppet movie based on the information so far.
ยทCameron Diaz Offered a Role in Dark Puppet Movie The Happytime Murders [Vulture]