Hollande and Merkel will discuss the proposal of creating a European internet when the pair hold talks in Paris on Wednesday.
Germany has been rocked by the revelations of former security contractor Edward Snowden, who revealed a mass spying programme by the US National Security Agency (NSA).
Merkel herself was infuriated when it emerged that NSA agents had also tapped her personal mobile phone.
By creating a “European internet” all servers and cables would be based in Europe, meaning they would be subject to European data protection laws.
The chancellor added she would talk to Hollande about “European providers which offer security for our citizens so that you don’t have to send emails and other information across the Atlantic, but can build up communications networks with Europe too”.
Sources at the Elysee have told Reuters that Paris would be willing to back her initiative.
Both Germany and the US have pledged to repair ties in the wake of the NSA spying scandal, but hopes of a “no-spy” treaty between the two countries look further than ever from being realized.
Der Spiegel magazine reported in its Monday edition that Germany is planning to ramp up its counterintelligence operations to deal with US spies on German soil.
France on the other hand seems to have buried the hatchet with the US over similar allegations that NSA captured millions of French phone calls and emails.
When Hollande met US President Barack Obama during his official state visit last week he said that “mutual trust had been restored” between the two countries.