Instead of satellites, the Locata system uses ground-based equipment to broadcast a radio signal over a localized area that is a million times stronger on arrival than GPS.
"This is one of the most important technology developments for the future of the positioning industry," Nunzio Gambale, chief executive officer and co-founder of Locata in Griffith, Australia, told NewScientist.com
Companies such as Google and Nokia have been working on technology to guide users around shopping malls or in building-shrouded city centers where GPS signals cannot penetrate.
Gambale says Locata-capable receivers should be small and cheap enough for use in smartphones within five years.
The U.S. military, which invented GPS technology, signed a contract last month agreeing to a large-scale test of Locata at the White Sands Missile Range in New Mexico.
Gambale says the company is also conducting tests in Sydney to see if Locata can provide precise positioning for police, emergency services and courier firms as they travel the city's crowded boulevards.