The new service, which will launch fully in the UK next year, has been designed to make sending emails a quicker and more intuitive process.
It allows instant or text messages to be sent from the inbox, and also features a Livestream within the inbox so users can update Facebook and Twitter from there.
The service aggregates emails from other providers including Gmail, Yahoo! Mail and Hotmail. It has a "Smart View" feature which displays maps, attached photos, files and conversation threads on the right side of the message so users can see relevant material before they open the message.
Brad Garlinghouse, president of AOL’s consumer applications group, said: "Email remains one of the most vital communication tools despite all of the new sites and apps available to consumers today.
"There is still so much innovation to be done in the space and Project Phoenix is just the tip of the iceberg."
The investment in the service follows AOL's strategic refocus on but comes amid moves by rivals to improve their email offerings.
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The new service, which is believed to give users a personal @facebook.com email address, is likely to contain social capabilities to prioritise personal emails for the user, in a similar way to .
In October, , allowing users to integrate the mail service with Facebook and Twitter accounts.
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