Speaking to military personnel at Marine Corps Base Quantico in Virginia on Wednesday, Hegseth said Musk and drone technology entrepreneur Palmer Luckey would be among those leading the initiative, known as Project Meridian.
The Pentagon expects the project to produce its findings within 120 days.
The project aims to "creatively look into the future and identify the domains we must conquer, and capabilities we must master," Hegseth said.
The defence secretary also addressed autonomous warfare, meaning the use of weapons systems and artificial intelligence capable of operating and carrying out attacks without direct human intervention.
"We need to be looking forward into the future to achieve technological and military dominance on the battlefield for decades to come," Hegseth said.
Hegseth also announced the creation of a new four-star Autonomous Warfare Command aimed at expanding the use of autonomous and robotic systems across the US military.
Pentagon dispute over autonomous weapons
The prospect of AI-powered autonomous weapons recently came into focus during a dispute between the Pentagon and US AI company Anthropic.
Anthropic refused to allow its technology to be used in autonomous weapons or for mass surveillance of US citizens, while the Pentagon insisted it should be able to use AI for any lawful purpose. The company was subsequently designated a supply-chain risk by the Pentagon.
Musk is also heavily involved in AI and robotics. SpaceXAI develops the Grok system, while Tesla, the carmaker he leads, is ramping up production of its Optimus humanoid robots.
Until late May 2025, Musk led the Department of Government Efficiency, or DOGE, the cost-cutting program set up by US President Donald Trump, through which he implemented significant cuts and job reductions at government agencies.
Project Meridian was one of several initiatives Hegseth unveiled in his speech.
He confirmed plans to cut around 20 per cent of positions designated for generals and admirals. Hegseth also announced an effort to make major US military installations capable of generating their own electricity in the event of disruptions to civilian power grids.
Hegseth said Trump wants to build a new military base in the US and invited states to put themselves forward to host between 15,000 and 25,000 troops.
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