In an interview with the Sunday Telegraph, the prime minister said £1 billion would be spent on the scheme over the coming years.
Speaking on the eve of his speech to the Labour Party conference in Manchester, he insisted the government was "on the side of hard-working families, helping them to climb the ladder".
He said the current scheme, under which three and four-year-olds are entitled to up to 15 hours of free child care a week, would be extended to two-year-olds.
Employers could benefit from the proposals by seeing the earlier return of staff members who had left to take care of children or the recruitment of parents with young children.
A survey conducted earlier this month by the parenting club Bounty revealed that half of all working mothers believe having a baby has had a negative impact on their career prospects, the Telegraph reports.
