Two digital companies, Hyperreal and Proto Hologram, announced they were working on the technology.
The avatar would be able to perform, have conversations with fans and move, speak, and respond as Ozzy would, they said.
It will appear in America and the UK by the end of the summer and Sharon Osbourne said she hoped it would appear in Birmingham first.
The avatar could do “absolutely everything” and she believed it could appear in concerts, films or adverts.
“You can ask him anything you want and he will talk to you.”
In a YouTube video, Jack Osbourne said the avatar was going to be “tasteful”.
He also revealed: “It’s something that I think my dad would be into because we actually talked about it before he passed about doing something like this.”
It has not yet been made clear how the avatar would be used, but he said it could be used as part of an exhibition or similar.
“This is some high-level technology that we’re going to be working with and it’s going to feel very real and it’s kind of wild how it will be utilised,” he said.
Since the death of the former Black Sabbath singer, Sharon Osbourne said her family had found a lot of comfort in the support they had received from fans around the world.
“Grief is a very weird thing and I truly believe it never leaves you, you just have to learn to live with it.”
“It’s been incredible the outpouring of love for Ozzy.”
She also said Aston Villa’s victory in the Europa League final has been “so joyous” for Birmingham.
“It’s what everyone needed it unites everybody,” she said.
“It’s relieving to talk about something where you’re a winner.”