The company aims to announce its new product by the end of June and ship to customers by the end of September in time for he holidays, The Wall Street Journal reported yesterday, citing unnamed people briefed on the matter.
Amazon, it said, hopes to differentiate its phone from other models with a screen that displays hologram-like three-dimensional images, which can be viewed without special glasses.
The company has been showing versions of the phone to developers in San Francisco and Seattle, the sources said.
Earlier this month the retailer unveiled a new media streaming device, Amazon Fire TV, which it touted as simplifying the experience of watching video online.
The new device is part of Amazon's strategy to expand from retail to multimedia, leveraging its Kindle tablets and streaming video.
The smartphone market is currently dominated by rivals Samsung and Apple as well as low-cost Chinese rivals like Lenovo and Huawei.