Sony said its 20-gigabyte device would be about £55 cheaper than the top iPod model, which has 40 gigabytes.
It is also aiming to boost use of its online music store Sony Connect, as its Walkman will play songs only in the company's own format.
The Walkman hits Japan on 10 July, the US in August and Europe by September.
Last year Sony announced it was cutting 20,000 jobs as part of restructuring to deal with sliding profits.
Sony said its Network Walkman NW-HD1 would sell for less than $400 (£219) in the US.
This compares with $499 (£274) for the highest capacity iPod.
Sony says its device can hold 13,000 songs while Apple boasts the iPod can store 10,000 songs.
But the two firms use different recording technologies which make like for like comparisons difficult.
The Sony device will be incompatible with other online stores and cannot play tunes in the popular MP3 format.
Small in size
It is slightly larger than a credit card and less than half an inch thick. Sony said the battery lasted 30 hours, at least three times longer than the iPod.
Sony hopes to rival Apple's hugely successful iPod It also promised shock-resistant technology that protected the hard drive if dropped.
Launched to mark the 25th anniversary of the original Walkman cassette player, Sony said it had used advanced compression technology to pack more songs in a smaller storage space.
It uses a 20-gigabyte hard-drive, compared with Apple's highest capacity 40 gigabyte models.
Sony said the NW-HD1would be the smallest player of its capacity on the market.
Sony has sold 340 million Walkmans during the past 25 years, including several million CD players.
Last month Apple's pioneering online music service iTunes was launched in the UK, Germany and France, offering more than 700,000 songs for 79p or 0.99 euros each.
ITunes has proved enormously popular in the US, with about 85 million songs downloaded since its launch in April 2003.
From BBC News