Such a system could transform transport systems around the world, doing away with the need for most of the people to buy cars, company executives believe.
They also believe that it would reduce the number of road accidents as well as having environmental benefits, a newspaper reported.
Google's move to create a driverless vehicle of its own comes after the company held talks with major manufacturers in recent months, hoping that carmakers would build vehicles that incorporated Google's self-driving software.
Since the launch of its self-driving car project in 2010, Google has created self-driving systems which have been installed in both Toyota Prius and a Lexus RX.
Cameras, sensors, radars and the company's own software have been added to the cars. Such vehicles have been given the green light to be tested on British roads before the end of the year, a website reported. However, it is believed that the carmakers have been reluctant to enter a partnership with Google, not wishing to give the technology giant a foothold within the motoring industry.
Frustrated by the lack of progress, Google is understood to have turned to designing its own cars instead. Last week, a German newspaper reported that Google was close to reaching a deal with Continental, one of the world's largest car component makers, to supply parts for its vehicles.
The robo-taxi system is being created within Google X, the department that develops futuristic technologies, including 'Glass' - a pair of high-tech spectacles that sends information straight to the eyes.