Google is in talks with German vehicle manufacturer Audi about building in-car entertainment and audio systems based on its Android software platform, according to the Wall Street Journal.
The talks could see Google's Android software built into the car itself, meaning a driver would no longer require an Android phone to control an existing proprietary entertainment system.
The move from the American technology giant could enable drivers to use its software to access music, navigation, apps and services similar to those offered on Android smartphones.
While several of these services require an internet connection, it is not clear at this stage how Google will ensure the car is kept online. However, some car manufacturers, such as GM and Audi, have announced plans to equip cars with 4G chips so that they can connect to the web without a smartphone.
Google is said to be considering partnerships with several other car companies, in addition to chip manufacturer Nvidia, whose chips could be used to power the in-car computing system.
The plans, set to be announced at the Consumer Electronics Show (CES) in January, come after rival Apple announced its "iOS in the Car" initiative in June, which aims to give drivers and passengers direct access to the functionalities of iOS devices via native in-car control systems.
Apple and Google already compete fiercely across a wide range of digital businesses, including mobile devices, browsers and online music stores.
With nearly 70 million cars created this year alone, the market represents a significant new opportunity for internet-based software and services.
"The car is becoming the ultimate mobile device," said Thilo Koslowski, an analyst at the research firm Gartner who specialises in advanced in-car electronics. "Apple and Google see that and are trying to line up allies to bring their technology into the vehicle."