The set-top box, due to launch in the second half of 2006 following trials in the spring, will feature a personal video recorder that is capable of storing up to 80 hours of programming and delivering high-definition content.
By using their BT broadband connection, customers will be able to watch digital terrestrial TV and highlights from the previous seven days.
Other features will include an entertainment library of films and music, instant messaging, chat and video telephony on TV.
The service will also offer BT customers interactive services such as online games, shopping and community services. The company has chosen Philips to manufacture its first set-top box,
BT has not yet confirmed a price for the set-top box, but it is expected to retail for around £100.
BT's move into the television market comes at the same time as the soon-to-merge cable giants ntl and Telewest also develop personal video recorders.