The technology could be used in various ways, including making it easier for people to navigate unfamiliar buildings, helping blind people to move around and for immersive indoor gaming, the company said.
The prototype is a 5-inch phone containing customised hardware and software designed to track the full 3D motion of the device, while simultaneously creating a map of the environment.
Two hundred examples of the prototype smartphone have been offered to developers interested in creating apps for it.
"It runs Android and includes development application programming interface (API)s to provide position, orientation, and depth data to standard Android applications written in Java, C/C++, as well as the Unity Game Engine," said the company.
Google's Advanced Technology and Projects unit developed the phone with help from researchers at various institutions.
"The goal of Project Tango is to give mobile devices a human-scale understanding of space and motion," the company said.