The company is also working on giving its iPods a wireless connection to the internet, so speeding up the downloading of music and video to the devices.
The touchscreen was first seen on the iPhone, which launched in the USA earlier this year, and has been the single biggest selling point of the product.
Bringing the same simple operating system to a video and music iPod is seen as a logical next step.
However, while the devices are beautiful and the operating technology is remarkable, doubts remain whether a large number of consumers actually want to watch movies and recorded TV shows on a handheld device.
While the video material currently available to buy from the iTunes service is unlikely to set pulses racing.
The material includes programming from ABC Studios, the Disney Channel, and Viacom's MTV, Nickelodeon and Paramount Comedy stations.
It emerged last week that NBC Universal had decided not to renew a deal under which its programmes were sold on iTunes. It is understood that NBC had demanded more control over the pricing of its content but was rebuffed.
NBC shows, which include Heroes, had accounted for about 40 per cent of television downloads on iTunes.
Apple's chief executive, Steve Jobs, is set to give a live demonstration of the new product line via video link to a group of European journalists in London.