The supermodel and little Lila Grace are working with British high street store Debenhams on a range of "funky tweenage" designs, due for release in summer 2012.
A source told the Daily Mirror newspaper: "Lila has always loved trying on Kate's clothes and make-up, and is already really into fashion.
"It was mainly all her idea and Kate obviously agreed to help out as much as possible, using her contacts to land the duo a deal.
"Lila is adamant the range will be very traditional and English rose-esque in feel. Lila doesn't want to produce chavvy clothes.
"The collaboration was actually inspired by Kate's mates, Jemima French and Sadie Frost's new FrostFrench 'Iris and Edie' capsule range of sleepwear after their daughters got involved.
"Kate and Lila Grace will get cracking on designs over the festive period, mulling over ideas at Kate's Cotswolds' pad."
Kate - who wed husband Jamie Hince in July - recently revealed Lila is quite "prudish" and will often tell her mother off when she doesn't take off her make-up.
She said: "I always take my make-up off, because otherwise my daughter will come in and say, 'Mummy, tut-tut'. She doesn't like it. She likes the fresh-faced, natural mummy, when I've got my hair in a bun and no make-up on.
"Lila is quite prudish - she'll only wear a little bit of lip gloss or something. But she is into nail art. I think Lila is beautiful - she's so innocent and has that fresh face. She's gorgeous, but obviously she is my daughter."