James Daunt, the company's managing director, told the BBC that he has been inspired by the success of Barnes & Noble's Nook device in the US.
The American bookseller is one of the few companies to have challenged Amazon's dominance in physical and electronic book sales. Amazon customers now purchase more Kindle books than paper versions.
To create the Nook in 2009, Barnes & Noble partnered with Chinese manufacturer Foxconn, manufacturer of Apple's iPhone. The retailer predicated in August that it would sell around $1.8bn (£1.1bn) in Nook e-books by the end of the current financial year.
Daunt was brought into Waterstones to revitalise the high street bookseller after Russian businessman Alexander Mamut acquired it from HMV Group.
A move into the competitive e-reader market would be a bold strategy for Waterstones, and it is expected that the company would partner with an electronics firm for the device.
Daunt believes that Barnes & Noble has shown that retail chains can take market share from Amazon by linking electronic readers to their stores. Owners of Nook devices can read books for free in Barnes & Noble stores for up to an hour each day.
Speaking on BBC Radio 4's You and Yours programme, Daunt said: "We in Waterstones's need to offer you a digital reader which is at least as good, and preferably substantially better, than that of our internet rival, and you will have a much better buying experience purchasing your books through us."
Daunt confirmed that the Waterstones e-reader project was "well down the planning line", and a launch is expected in spring 2012.