The Cupertino tech company has dedicated about 100 product designers to the project, according to Bloomberg News, which cited unnamed sources.
The iWatch, which has been rumored for the last few months, would be able to make calls, show caller ID, check map coordinates, count steps using a pedometer and monitor health-related data using sensors. The device may also run on iOS, Apple's mobile operating system, according to the report.
Apple has filed for 79 patents that include the word "wrist" in them, the report says. One of those patents says the device may also have a flexible screen and be powered using kinetic energy.
The report also says Apple might be going into the wristwatch market because gross margins on watches are about 60%. That's four times the gross margin for TVs, which is another market Apple has been rumored to have an interest in.