The title says it all. From Engadget:

Google is working on a mobile OS, and it’s due out shortly

We understand that the “Gphone OS” (our name for it, not theirs) began development after Google’s very quiet 2005 acquisition of mobile software company Android, started by Danger cofounder and former-prez / CEO Andy Rubin. At Google, Andy’s team has developed a Linux-based mobile device OS (no surprise) which they’re currently shopping around to handset makers and carriers on the premise of providing a flexible, customizable system — with really great Google integration, of course.