Sony says its next-generation PlayStation VR system will feature an improved field of view and silence critics of the current device's wire-heavy set-up.
The headset will also come with a new controller inspired by the PS5's DualSense gamepad.
PSVR faced criticisms over the multiple cables and adaptors it required.
The new version, PSVR2, will run using a single cord connection, enabling less cluttered play.
It is expected to hit shelves at some point in 2022, but no games have yet been announced for it.
Games industry analyst Piers Harding-Rolls told the BBC the release would help fill a gap in the market that had yet to be filled by competitors.
"The first PlayStation VR helped the PS4 console stand out from Microsoft’s Xbox One, and a next-gen version will do the same for the PS5 versus Xbox Series X."
However, he questioned Sony's decision to not launch a wireless device.
"I still hope that a wireless solution, as is available on other PC-based headsets, makes its way to market at some point."
The original PlayStation VR launched in 2016 for the PS4.
Sony said in January 2020 that sales had topped five million units since the headset first went on sale.
The gaming giant says the new headset will feature improvements in everything from resolution to field of view to track and input.
However, there are currently no next-gen PlayStation 5 games that are compatible with the technology.
Players can use the device on PS4 games that are backwards compatible with the PS5 such as Minecraft and Skyrim. However, an adaptor is needed to make this possible.
Hideaki Nishino of Sony Interactive Entertainment revealed that fans should not expect to get their hands on the system this year.
"There’s still a lot of development under way for our new VR system," he said.
"We’re taking what we’ve learned since launching PS VR on PS4 to develop a next-gen VR system.
"It will connect to PS5 with a single cord to simplify setup and improve ease-of-use, while enabling a high-fidelity visual experience."
He also revealed that development kits were due to be sent out shortly.