The five-year long 'Tissue Chip for Drug Testing' programme, worth 45 million pounds (USD 70 million), is being funded by three giant US agencies, the 'Daily Mail' reported.
Scientists at the Wyss Institute for Biologically Inspired Engineering at Harvard University will focus on the multi-organ chip device.
Researchers at Vanderbilt University in Nashville are working on the micro-brain bioreactor, which like the organ chip will contain human cells.
The brain is an especially difficult target for drug development because it puts up multiple natural barriers to potentially toxic molecules
Each "organ" will be about the size of a computer memory stick. The clear plastic chips contain tiny hollow channels lined with living human cells.
Researchers will also create a "microbrain bioreactor", seeded with human neurons, to mimic the biology of the human brain.
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The devices will be used to identify, develop and test novel drugs to treat a host of different diseases.
Presently, much of the drug testing is done on animals, usually rodents. Although there are many biological and genetic similarities between a rodent and a human, there are crucial differences too.
In some cases, adverse reactions or side effects only become apparent during patient trials - or even when a drug is marketed.
Dr Katy Taylor, scientific adviser for the British Union for the Abolition of Vivisection, said: "This is an exciting example of how modern-day innovation can produce a humane and more reliable approach to understanding the inner workings of human disease without the need for animal suffering."
"Given the differences in cellular biology in the brains of rodents and humans, development of a brain model that contains neurons and all three barriers between blood, brain and cerebral spinal fluid, using entirely human cells will represent a fundamental advance in and of itself," Professor John Wilkswo, director of the Vanderbilt Institute for Integrative Biosystems Research and Education said.