The headset could work similarly to the AR applications that are already available for Apple's new iPhones. These apps allow users to peek through the display to see information — such as games or even digital furniture — placed within the real world.
Bloomberg said an Apple team is building the headset and a special chip for it. The headset might launch as soon as 2020. The product is part of several new gadgets being crafted under the T288 code name, Bloomberg said.
Cook has said he sees augmented reality to be a more important technology than virtual reality, which takes a user out of the real world and places them in an entirely digital one. Oculus and HTC are building virtual reality headsets, and Microsoft's new "Mixed Reality" headsets also take advantage of VR.
Google tried to make augmented reality a mainstream consumer product with Google Glass, though the ability for users to record anything they saw was seen as a privacy invasion. The product is now more targeted at enterprise users. Apple will need to avoid the same mistakes Google made, including developing a headset that looks more normal — perhaps like a regular pair of glasses — to avoid some of the Google Glass' shortfalls.
Apple declined comment for this story.