Canesta, a startup that makes chips to enable electronic devices to “see” by locating objects in three dimensions, has announced a major partnership today with natural user interface company YDreams to develop augmented reality (AR) offerings.

AR applications are used to superimpose data over real-world objects seen through a camera (such as a cellphone or game console camera). The biggest challenges in AR is that it is still a fringe technology and generally seen as not yet fully-fledged.

YDreams is a Portuguese company with 10 years of experience developing natural user interfaces (for example, enabling users to interact with devices using hand gestures or other motions instead of tactile interfaces like a keyboard or a mouse). In the joint venture, YDreams will bring its software platform onto Canesta’s hardware. The parties will have an intercompany team working on future product launches, on which Canesta is remaining tight-lipped for the moment. The company feels that YDreams is a “thought-leader in the area of immersive augmented reality (AR) experiences”, as Canesta CEO Jim Spare phrases it.

No newcomer to the scene, YDreams has done over 500 projects for big brands like Coca-Cola, Adidas, Nike, Nokia and BBC and has partnerships with technology giants like Microsoft and Samsung. The collaboration between YDreams and Canesta will hopefully break AR applications out of the confines of technological gimmickry and specific projects like museum installations or retail-store kiosks.

Canesta, based in Sunnyvale, Calif., says its chips can bring the ability to see, or perceive the environment via a camera, to all the hundreds of millions of computers, televisions (see a video demo here) and smartphones on the market. The process of seeing is very complicated to produce artificially, Spare explains.

“Us humans can work with 2D images, which is what we do with still cameras and TV and so on, but for a device to see and understand an object’s location in space, you need a 3-dimensional image. We have been able to reduce the collecting of that 3D image to a small chip and are able to produce it in a low-cost, high-volume manner.”

Canesta is in the product development stage and is not giving out specific numbers as to revenue. The company has raised an impressive $74 million in funding from Venrock, Carlyle Group, Honda, SMSC, and the world’s largest laptop maker, Taiwanese Quanta Computer.

When asked when—if ever—AR will become a mainstream technology, Spare had this to say:

“If you look at the things that are happening on the market today, it’s starting to happen. AR, like many other technologies, starts with very specific applications. However, augmented reality applications that involve three-dimensional input [like operating interfaces through physical gestures] will start appearing in a significant way this fall. Next year you will see a dramatic increase in the visibility and use of the technology, and by 2012 it will be commonplace.”