An elevated network of hover cars is to be built in Tel Aviv.
A 500m loop will be built on the campus of Israel Aerospace Industries (IAI) followed by a commercial network, according to skyTran, the company that will build it.
Two-person vehicles will be suspended from elevated magnetic tracks, as an alternative transport method to congested roads, the firm promised.
The system should be up and running by the end of 2015.
The firm hopes the test track will prove that the technology works and lead to a commercial version of the network.
The plan is to allow passengers to order a vehicle on their smartphone to meet them at a specific station and then head directly to their destination.
The vehicles will achieve speeds of up to 70km/h (43mph) although the commercial rollout is expected to offer much faster vehicles.
A number of skyTran projects are planned globally, including in India and the US, but will depend upon the success of the Israeli pilot.
SkyTran, based at the Nasa research park in California, hopes to revolutionise public transport.
Chief executive Jerry Sanders described the agreement to build a test track with IAI as a "breakthrough" for the project.
Joe Dignan, an independent smart city expert, said the system represented "a hybrid between existing infrastructure and autonomous vehicles".
"It will get the market in the mood for autonomous vehicles - it is not too scary, is cheaper than building out a train line and uses part of the urban landscape, 20 feet above ground, that isn't currently used."
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