Toyzone.co.uk will pit Mr Freud and his partners against American online toy companies including eToys, a California firm which launched a UK website last week.
Mr Freud hopes to blast eToys and other rivals out of British cyberspace through a link-up with Kids Play Factory, the UK toy retailer with outlets at malls across the country. Toyzone also hopes to build customer awareness through Toyzone outlets at Granada service stations.
"We think that by tying our online operation with bricks and mortar we will put ourselves at a competitive advantage over other online toy retailers," said Oliver Wheeler, Mr Freud's spokesman.
Mr Freud's partners include the Goodall family, owners of the Kids Play Factory. The PR man has bought 40 per cent of their toy company for an undisclosed sum.
The new business is supported by an investment fund whose principals include Chris Gorman, founder of Reality, the e-commerce house which created the Toyzone website, and Matthew Peacock of Iforce, the subsidiary of Dataforce which will deliver orders placed on the internet.
The investment fund behind the start-up is headed by Tom Hunter, a former market trader, who made his fortune building up the Sports Division retail chain, which he sold last year to JJB Sports in a deal which netted his family pounds 290m.
Mr Hunter has set about investing in a number of businesses, including Fosters, the troubled clothing company, and MJM International, a Glasgow- based firm which is launching a rival to the Wonderbra. He also sat on the board of January Investments, the vehicle which entrepreneur Philip Green used earlier this year to complete his takeover of Sears, the retailer.
Start-up costs for Toyzone total between pounds 1m and pounds 5m, according to Mr Wheeler.