The unit showed a prototype of the still-nameless product in a blog post co-authored by Google product manager Aayush Upadhyay and associate project manager Neel Rao.
The demonstration video showed a cube floating inside a VR app that can be clicked to activate a digital ad.
Google and rival Facebook are racing to develop such ads, expecting developers to create a flood of apps that use the technology.
“Our work focuses on a few key principles — VR ad formats should be easy for developers to implement… and useful and non-intrusive for users,” the research pair said in the post.
Area 120 has released an early stage software developer kit for use in building VR apps, the post said.