The restrictions will initially apply to English-speaking countries but will be expanded to the rest of the world and 158 other languages within six months.
Microsoft, which owns the Bing search engine, has also stepped up action against online child abuse in recent months and it welcomed Monday's internet safety summit at Cameron's Downing Street office.
"Increased collaboration (with government and industry bodies)... is the best way to combat this vile content," a spokesman for the technology giant said.
Microsoft has developed and shared its picture detection technology which helps prevent banned images being duplicated across the web, while Google is also testing new ways to identify videos of child sex abuse.
Warnings have been added to more than 13,000 search results making clear child sex abuse is illegal, Schmidt said, while both Google and Microsoft have stopped auto-complete features from offering child abuse search terms.
The internet summit comes just days after police in Canada revealed they had arrested 341 people around the world, including teachers and doctors, following an investigation into a child porn site.
Authorities seized a vast amount of data, including hundreds of thousands of images and videos detailing "horrific" sexual acts against children as young as five.
But the British government has been pushing for action since the summer, after two high-profile child sex murders in which the killers were found to have searched for child porn online.
In July, Cameron threatened to introduce legislation to block access to illegal images if search engines failed in their "moral duty" to do it voluntarily.
"Since then, we have worked closely with both Google and Microsoft and they have made significant progress in preventing child abuse content from being returned," the prime minister said ahead of Monday's summit.
But he said the threat of legislation remained.
"With the progress that has been made in four months, I believe we are heading in the right direction but no one should be in doubt that there is a red line," Cameron said.
"If more isn't done to stop illegal content or pathways being found when someone uses a child abuse search term, we will do what is necessary to protect our children."
Some experts warned that the reforms will not stop pedophiles sharing images on the internet.
"They don't go on to Google to search for images. They go on to the dark corners of the internet on peer-to-peer websites," said Jim Gamble, former head of the police-linked Child Exploitation and Online Protection Centre.
- AFP
