The OS is to be distributed to device makers for free.
Google is planning to introduce a new version of Android which will power virtual-reality applications.
Sources familiar with the matter told the Wall Street Journal that the tech giant already has ‘tens of engineers’ along with other staff working on the new OS.
The company plans to distribute the new OS for free, in order to replicate the success it achieved by giving away Android without any cost to device makers.
According to reports, the company is competing with other tech giants who have already entered the virtual reality market with their own offerings.
Facebook began the trend when it acquired Oculus VR for $2bn, followed by Samsung which teamed up with Oculus for its Gear VR headset.
Sony has developed its own headset dubbed Project Morpheus, and Microsoft is also reportedly working on a similar device called "HoloLens".
Presently, four versions of Android are available on the market, and several device makers have developed their customised version of the OS for their devices including Nokia.
According to the publication, Google vice president of product management Clay Bavor and Google director of engineering Jeremy Doig will be heading the Android for virtual reality team.
Bavor was also involved with the creation of ‘Google Cardboard’, a low-tech virtual-reality viewer.