The Intellidrug device is small enough to fit inside two artificial molars in the jaw, the Engineer journal said.
European Commission researchers also believe it will benefit patients, such as those with diabetes and high blood pressure, who need doses in the night.
If human trials prove successful, the device could be available in 2010.
Dr Thomas Velten, from the Frauhofer Institute for Biomedical Technology in Germany, one of the 15 research bodies involved in the project, said: “It is important for some conditions that there is a constant level of drug in the blood.
“With this system, we can time the dosage to take place – even when the patient is sleeping.
“We can easily adjust the dosage in line with the patient’s needs, dependent on sex or weight.”
Intellidrug works by holding the drug in tablet form in a reservoir. The implant is held in place through a combination of clips and dental fixative.
The artificial tooth will contain a reservoir which will release the drug
Once in place, saliva in the mouth enters the reservoir via a membrane and dissolves the solid drug, forming a solution.
When the system is triggered by the electrical timing mechanism, a valve opens and allows a controlled amount of the solution to flow into the mouth where it is absorbed into the body.
The device is fitted with two sensors. The first is a fill-level sensor that measures the concentration of the drug in the reservoir.
It alerts the patient when the concentration of the drug falls below a certain level. At the moment enough medication can be contained for up to two weeks.
The second sensor monitors how much drug solution has been administered and a remote control allows the doctor to increase the dose of medication if necessary.
Matt Griffiths, prescribing and medicines manager adviser at the Royal College of Nursing, said: “Cost is an issue as to whether this would become widely available, but there is a cost benefit to improving medicines concordance.
“About 50% of people with chronic conditions do not take their medicines correctly and that in turn costs the health service money.”