The 58-year-old plans to develop a giant aircraft that would put spaceships into orbit, rather than lifting them off from a launch pad.
Other moguls are in the private space race, too, after Nasa this year ended its 30-year space shuttle programme.
Virgin Galactic is working on a commercial space venture which aims to fly passengers into sub-orbit by 2013.
Aerospace pioneer Burt Rutan is a partner on Mr Allen's project, which is called Stratolaunch Systems.
The project is the latest to be led by Silicon Valley tycoons who think they spy a gap in demand opened by the retirement of the US government's space shuttle programme.
While Nasa put rockets into space from a launch pad, the Stratolaunch plan is to launch unmanned rockets from high-flying aircraft, and eventually undertake manned missions too.
The developers said their aircraft could ferry cargo for the commercial satellite industry and the International Space Station.
The giant plane would be powered by six 747 jumbo jet engines and have a wingspan of 385ft (117m), developers said.
It would be wider than the biggest aircraft ever, legendary Hollywood tycoon Howard Hughes' Spruce Goose.
The first test flights are scheduled to begin in 2016.
Mr Allen and Mr Rutan said that preliminary designs for the Stratolaunch aircraft have been put together over the course of 10 years.
Construction has begun on a hangar in California's Mojave Desert, they said.
In 2004 the duo created SpaceShipOne, a sub-orbital rocket that became the first privately financed, manned spaceship.
"When I was growing up, America's space programme was the symbol of aspiration," Mr Allen said at a news conference in Seattle.
"For me, the fascination with space never ended. I never stopped dreaming what might be possible."
Stratolaunch's plane will carry a booster rocket on its belly, to be built by a space company owned by Elon Musk of PayPal, who has already built a successful commercial rocket.
Other technology titans who have made forays into the private space industry include Jeff Bezos, founder of Amazon.com.
British tycoon Richard Branson's Virgin Galactic aims to take passengers into sub-orbital space.
Dropping rockets into space is not a new technique, but can offer more launch flexibility and minimise weather constraints, developers said.
It can also save on rocket fuel.
Orbital Sciences Corp, an older rocket company, has used this method of launching payloads such as unmanned rockets and satellites.
Microsoft co-founder Paul Allen has announced plans to launch unmanned rockets and carry cargo into space.