This paper is a progress report of a research project toward practical use of air bubble injection as a drag reduction device for ships. Air bubbles injected into the turbulent boundary layer in water flow are well known to have significant skin friction reduction effect. The current research project will last for three years, starting in April 2005. The project aims at obtaining 10% net energy-saving by air bubble injection, taking into account the work needed for injecting air bubbles. A full scale experiment is scheduled in September 2007. The photo and principal particular of the ship used for the full scale experiment are shown in Figure 1 and Table 1. The ship has a wide and flat bottom. Therefore, once air bubbles are injected at the bottom near the bow, they are expected to cover the entire bottom surface efficiently. The air bubbles must be injected against the hydrostatic pressure at the point of injection. Estimation of the rate of drag reduction per unit amount of injected air at full scale is extremely difficult if it is based on small model-scale experiments, because the scale ratio of air bubbles to boundary layer length scales is very different between model and full scale experiments. Therefore we carried out experiments using a flat plate (L=50m, B=1m) in the 400m towing tank of the institute. The plate was towed at 6.2m/s (12kt), the cruising speed of the ship for a full scale experiment. Air bubbles were injected at 3m from the bow. Both the total drag of the flat plate and local skin friction were measured. Recently we attached end plates almost along the entire length, in order to prevent air bubbles from getting lost from the sides, and obtained significant improvement in drag reduction. Injected air bubbles are expected to go into the propeller operating at the stem and the propeller performance may deteriorate. Therefore we carried out tests of a model propeller working in bubbly flow. So far we found that the degradation of the propeller performance due to bubbles is small and tolerable. The project is carried out in collaboration with Osaka Univ., Hokkaido Univ., Tokyo Univ., Mitsui Engineering & Shipbuilding CO., LTD. and Azuma Shipping CO., LTD.. The project is funded by NEDO (New Energy and Industrial Technology Development Organization), Japan.