Designed by Philips, the Dutch electronics giant, the iPill consists of a microprocessor, battery, wireless radio, pump and a drug reservoir so that it can release medication in a specific area in the body.
It uses its sensors to measure acidity ad its location in the gut and then releases the drug, reports The Telegraph.
According to the company spokesman, it is possible to use the iPill for the treatment of digestive tract disorders like Crohn's disease.
As the dose can be directly sent to the location of the disease, this implies that the doses would be lower, and thus would even reduce the side effects.
With the iPill, it is possible to measure the local temperature, which can be reported wirelessly to an external receiver.
Already, capsules containing miniature cameras are being used as diagnostic tools, but they fail when it comes to drug delivery.
Philips claimed that the iPill is a prototype but suitable for serial manufacturing.
The company is expected to present the new technology at the annual meeting of the American Association of Pharmaceutical Scientists (AAPS) in Atlanta this month.