It follows a string of high-profile gang rapes in the country.
The watch, developed by the Centre for Development of Advanced Computing, can be used to alert authorities and family members if the wearer is in danger.
The wearer can send a message to the nearest police station or chosen relatives by pressing a button. The GPS system will pinpoint the location.
The watch will also feature a built-in camera that can record for up to half an hour.
According to the Wall Street Journal blog India Real Time, a prototype watch will be ready by mid-year and will cost between $20 and $50 (Â£13 to Â£32).
The government has held initial talks with state-run telecom equipment maker ITI Ltd about manufacturing the watch, it said.
The brutal gang rape and murder of a young woman in Delhi in December raised questions about how well the country is protecting women from sexual violence.
It led to nationwide protests with campaigners calling for tougher rape laws.
This month, a 21-year-old factory worker living in a suburb of Delhi was found dead, allegedly another victim of gang rape.
Meanwhile in Goa, a seven-year-old girl was raped in a school toilet.
The cases have sparked a search for technologies that can help and Indian trade group Nasscom recently announced a competition for firms to develop apps specifically focused on keeping women safe.
The Indian government is working on a GPS watch that it hopes will help in the fight against rape.