The phone will run on a version of Baidu's cloud-base operating system and users will have access to map features, music and 100GB of storage space. Foxconn is the production partner for the project.
The phone focuses on the affordability - it will cost under CNY 1, 000, reports the Dow Jones Newswire.
Baidu greatly benefited when Google fled the country due to censorship concerns. In terms of revenue, Baidu holds more than 78% of search market in China.
On the mobile side, it has not enjoyed the same success, which may lie behind the decision to create its own phone. Analysts now believe that this could impact the vast Chinese market, especially in smaller cities where consumers will be attracted by a lower priced phone.