Sony's Reader Pocket Edition, with a five-inch screen and storage capacity for roughly 350 books, will cost $199 (£117), making it the cheapest electronic book reader in the US.
The price is $100 cheaper than Amazon's standard Kindle 2, which was reduced to $299 in July. A larger version of the Kindle, the DX, sells at $489.
Sony is also launching a device with a six-inch touchscreen called Reader Touch Edition, which will go on sale for about $299.
The Touch Edition includes an integrated Oxford American English Dictionary which allows readers to look up a word by simply tapping on it.
Bringing its content pricing in line with Amazon, Sony has cut the price it charges for downloads of best-sellers and new releases from $11.99 to $9.99.
Steve Haber, president of Sony's Digital Reading Business Division, said: "We firmly believe consumers should have choice in every aspect of their digital reading experience.
"Our goal is to expand the market and provide open access to what consumers want to read when they want to read it -- whether you buy, borrow, or get it for free."
The Reader Pocket Edition and Reader Touch Edition will be on sale in the US at the end of August.
The firm agreed a deal with e-book manufacturer Plastic Logic to be the exclusive provider of e-books for its eReader device to be launched next year.
Barnes & Noble's 700,000 e-books will not be compatible with Amazon's Kindle or Sony's Reader, but they will be accessible on the iPhone, BlackBerry and most Windows and Mac computers.
Most new releases and bestsellers will cost $9.99 to download -- in line with Amazon's pricing scheme and Sony's new pricing scheme.