The current iPad's screen measures 9.7 inches, unchanged since the first model was released in 2010, but the new tablet will have a screen of around 8 inches or less, sources told the Journal.
Sources at the component suppliers reportedly said Apple has told them to be ready for mass production of the smaller tablet in September.
Analysts said a smaller iPad could help Apple keeps its dominance in the tablet market against increasing competition.
A smaller iPad would compete with Google's recently announced Nexus 7 with its 7-inch screen and with Amazon's Kindle Fire, which also comes in at 7 inches of screen real estate.
An Apple spokeswoman declined to comment on the reports, the Journal said.