The Latitude service can be used on most smartphones or downloaded to a desktop computer. It allows users to track friends who are using the service using GPS and Google Maps.
Users must voluntarily sign up for the service and they are also allowed to limit who gets to see where they are, whether the exact location, the city they are in, or choose to give no details at all.
Critics have said the application is a "privacy minefield" and could be abused by overzealous employers, jealous spouses or paedophiles.
Others say it could be misused in the future by police or government organisations to illegally track wanted individuals.
Simon Davies, director of human rights group Privacy International, said: "Many people will see this as a cool technology but the reality is it will be a privacy minefield.
"I would be concerned about any integrated use across Google services as their security is so poor and it's becoming the world most pervasive system."
A Google spokesperson said that fine-grain privacy controls have been built into the system and that it company will not store any of the tracking information.
Vic Gundotra, vice-president of engineering for Google mobile team, wrote on the company's official blog: "Everything about Latitude is opt-in. You not only control exactly who gets to see your location, but you also decide the location that they see.
"For instance, let's say you are in Rome. Instead of having your approximate location detected and shared automatically, you can manually set your location for elsewhere -- perhaps a visit to Niagara Falls."
The application is available for download in 27 countries for BlackBerry's, Android, and Window's mobile phones. An iPhone application is expected in the near future.
Last year Google was signed up by US intelligence agencies to help them better handle and share information gathered about terrorist suspects.
According to reports in the San Francisco Chronicle the search giant is working with agencies such as the National Security Agency.