Ukraine crisis: 'Last chance' for peace says Hollande
Mr Hollande said the plan would include a demilitarised zone of 50-70km (31-44 miles) around the current front line.
The leaders are attempting to end the fighting in Ukraine between government troops and pro-Russia rebels.
Russia is accused of arming pro-Russian separatists in eastern Ukraine - claims it denies.
Mr Hollande and Mrs Merkel are due to discuss the peace plan with Russian President Vladimir Putin and Ukrainian leader Petro Poroshenko by telephone on Sunday.
Few details have emerged, but the plan is thought to be an attempt to revive a failed ceasefire deal signed in Minsk, in Belarus, in September. Since then, the rebels have seized more ground, raising alarm in Kiev and among Ukraine's backers.
The UN says fighting has left nearly 5,400 people dead since April, when the rebels seized a big swathe of the Luhansk and Donetsk regions following Russia's annexation of Crimea.
Diplomatic talks have been continuing at an international security conference in the German city of Munich, where Russian Foreign Minister Sergei Lavrov said he "sincerely" hoped the latest peace plan would "produce results".
Mrs Merkel told the conference that while there was no guarantee diplomacy would succeed, it was essential to try. "I believe we owe that much to those who are affected in Ukraine," she said.
Mr Hollande told French TV that eastern Ukrainian regions would need extensive autonomy. "These people have gone to war," he said. "It will be difficult to make them share a common life
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