The boxes will feature a version of Windows Embedded fine tuned for televisions, and will sell for about $200, according to The Seattle Times.
"They'll pose a serious challenge to the new Apple and Google TV devices, largely because the Windows boxes have a polished and familiar TV-program guide that makes it easy to blend and navigate both online and broadcast content," said the newspaper.
Microsoft did not respond to the Times' report.
Web-enabled televisions are seen by many as the next big thing in consumer electronics, and gadget makers are in a race to dominate the market for boxes that will provide the Web connection and other, value-added services.
Both Apple and Google recently introduced set-top boxes that carry their brands.
To date, Microsoft has relied on its Xbox 360 console and Xbox Live network to bring digital content, including games, movies, and TV shows, to consumers' televisions. But the Times' report suggests the company is looking to become more than a peripheral player in the market, and perhaps go head-to-head with Tivo and other DVR providers.
Microsoft isn't entirely new to TV set-top boxes, but its track record isn't great. Over the past decade, the company's entries in the market have included Ultimate TV and WebTV, neither of which caught on with consumers.
Microsoft may be hoping that the increasing number of U.S. homes with broadband connections and home Wi-Fi means the time is right for another shot at the market.