The new service means that Facebook's 400 million-plus users will be able to see the locations of their friends in addition to their status updates.
The social networking giant plans to unveil the new feature at its annual development conference in late April.
The Times, citing people familiar with the company’s plans, said Facebook will provide its own service direct to its users and will also open up its Application Programming Interface (API) to other developers so that users of those services can share their location with their Facebook friends.
The company’s location-based service was reportedly not targeting smaller, popular location-based start-ups like Foursquare, but was instead aimed at competing with Google in the market for small-business advertising.
Facebook was founded by the now 25-year-old Mark Zuckerberg in his Harvard University dorm room in 2004. The Palo Alto, California-based company employs 1200 people.
The Wall Street Journal reported that Facebook, which turned cash flow positive last year, could see revenue of between $1.2 billion and $2 billion ($1.31bn - $2.18bn) this year.