The application is said to be independent of the company's work with the Oculus Rift headset, bringing more immersive video experiences to iOS and Android users.
Users will be able to "move around inside the video and view it from different angles" by turning and tilting their mobile device, reports the Wall Street Journal.
Facebook pledged its commitment to bringing virtual reality to the fore last year when it shelled out $2 billion (£1.2bn) on Oculus Rift maker Oculus VR.
The consumer version of the virtual reality headset is set to launch early next year, but it is unclear when the smartphone app will arrive.
Not quite as technically impressive but sure to be useful, Facebook is also testing temporary profile pictures that will make it easier to support causes on the network.