Dubbed 'Project Morpheus', the device is a work-in-progress and will offer a 'deep sense of immersion' to users, featuring a head mounted display with 1080p resolution and a 90 degree field of view.
Head orientation and movement is tracked through a built in accelerometer and gyroscope, as well as tracking through the PlayStation Camera, so the virtual move rotates around the player in real-time.
It also features 3D audio technology that creates stereoscopic sounds in all directions based on current head orientation.
Project Morpheus will be compatible with DualShock 4 and PlayStation Move.
Sony has described the prototype, which has been in development for three years, as "sleek and futuristic, black and white with blue highlights".
Check out a photo of "Project Morpheus." Pretty cool, huh? pic.twitter.com/znCemKqpN4
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ā PlayStation (@PlayStation) March 19, 2014
"The six key requirements for creating 'presence' with Project Morpheus VR: sight, sound, tracking, control, ease of use, and content," Sony said in its 'Innovation at PlayStation' GDC conference (via Twitter).
"Content is king for VR and Project Morpheus. We want to make PlayStation the best place for VR - not just playing, but developing."
The firm added: "Low latency, high framerates, clean visuals, 3D audio are among the qualities that create effective VR with devices like Project Morpheus.
"Project Morpheus will be comfortable and friendly, and will enable new social experiences. And yep, it'll work if you wear glasses."
Sony's early partners for Project Morpheus include Havok, Silicon Studio, Unity, Crytek, Criware and Epic Games.
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That's a wrap! Here's another photo of Project Morpheus, PlayStation's new VR prototype pic.twitter.com/qMJKWnUlmM
ā PlayStation (@PlayStation) March 19, 2014
The device will be available to demo at GDC later today (March 19).
Attendees will be able to try out several VR titles, such as The Deep, The Castle, EVE: Valkyrie and Thief.
The Project Morpheus announcement comes after multiple reports that alleged Sony was planning to unveil its PS4 VR headset this week.
Microsoft is also developing its own virtual reality device, according to sources claiming they're affiliated with the unannounced project.
Digital Spy is reporting live from GDC 2014 throughout this week.
