The car giant said sensors in the steering wheel could be used to measure a driver's brainwaves.
Human brains tend to generate four or more distinct brainwaves at different frequencies. By detecting which type of brainwave is dominant, an on-board computer could assess whether a driver is focused, daydreaming, sleepy, or distracted.
"If brain activity indicates a daydream or poor concentration, then the steering wheel or pedals could vibrate to raise the driver's awareness and re-engage them with driving," said Jaguar Land Rover's research and technology director Dr Wolfgang Epple.
While the most common method for monitoring brainwaves is using sensors attached to a headband, Jaguar Land Rover need to find a method that wouldn't be impractical during driving. It is investigating a method employed by NASA to develop pilot's concentration skills as well as the US bobsleigh team.
The car manufacturer is currently conducting user trials to collect more information on the different brainwaves identified through the steering wheel sensors, with the help of neuroscientists, it said.
The new technology is part of a wide range of driver safety projects to reduce crashes caused by stressed, distracted drivers.
It will combine heart rate, respiration and brain activity level trackers, similar to those used in sports medicine and aerospace, the firm said.
It is currently trialling a medical-grade sensor embedded in the seat of a Jaguar XJ which was originally developed for use in hospitals to detect vibrations from a driver's heartbeat and breathing.
Further, it is researching how to deploy touchscreens that can predict which button a driver wants to press as their fingers are mid-air - so they can minimise any time a driver spends with their eyes off the road.
Epple said: "We believe some of the technologies currently being used in aerospace and medicine could help improve road safety and enhance the driving experience. The car is becoming more intelligent and more able to utilise cutting-edge sensors. These research projects are investigating how we could exploit this for the benefit of our customers and other road users.
"One key piece of new research is to see how we could measure brainwaves to monitor if the driver is alert and concentrating on driving. Even if the eyes are on the road, a lack of concentration or a daydream will mean the driver isn't paying attention to the driving task. They may miss a warning icon or sound, or be less aware of other road users so we are looking at how we could identify this and prevent it causing an accident."
Jaguar Land Rover has also revealed a technology to detect potholes and communicate this with other cars.