Culture Minister Ed Vaizey has asked publisher William Sieghart to lead a review of e-lending with a panel of experts.
While some libraries in the UK already lend books electronically, many do not.
There is little agreement about the best way to make ebooks available and also how to remunerate authors and publishers.
"E-lending is currently in its infancy but growing fast. Just as e-readers are transforming the way people access books, e-lending could help transform the way people use libraries," said Mr Vaizey.
"By acting now we we can help influence the growth of e-lending to ensure libraries, authors, publishers and the public all benefit from this potentially valuable new service."
Mr Sieghart and the panel will consider a range of issues including: the benefits of e-lending; the current level of e-lending and future demand; the impact on libraries; and the effect on those who cannot keep up with changes in technology.
One of the panellists is Janene Cox, president of the Society of Chief Librarians.
She said that offering ebooks in libraries would help to generate new audiences.
"We need to ensure that our service reflects the changing way that people want to read and also engage with local services."
But she added, "I don't believe that they [ebooks] will replace printed books or other information sources totally but they will complement and enhance them."
The panel is due to report back in the new year.
The government is to look at ways to transform libraries and make the borrowing of ebooks more commonplace.