"If companies become aware of terrorist activity such as attack planning, recruitment or distribution of terrorist material, they must report that information to law enforcement," a statement put out by Democrat Dianne Feinstein's office said.
The law, proposed by Feinstein and Republican Richard Burr, is based on similar legislation already used to fight online child pornography.
The statement emphasized that companies would not be required "to monitor customers or undertake any additional action" but were merely responsible for reporting any observed activity.
The proposed measure comes less than a week after two shooters, Syed Farook, 28, and his Pakistani wife Tashfeen Malik, went on a rampage in San Bernardino, California killing 14 people and injuring 21 more.
Top security officials believe the pair had been radicalized, with investigators probing reports the 29-year-old Malik had pledged allegiance to the Islamic State group in a Facebook post.
"We're in a new age where terrorist groups like ISIL are using social media to reinvent how they recruit and plot attacks," Feinstein said, using an alternate acronym for IS.
SIIA, a software company association, believes the legislation would do more harm than good, creating larger government surveillance, according to its vice president Mark MacCarthy.
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