Apple will be dropping an iPad Mini in October in order to retain its dominance in the tablet space, according to our sources. The iPad Mini will be targeted directly at the incoming flux of lower-end $299 tablets; and sources tell us Apple will be very clear to draw a line between the abilities of the iPad Mini and the much more powerful iPads.

According to our sources as well as a number of other sources on the Internet, the iPad Mini will sport a 7.85” inch display with 8GB of flash storage and will retail at a $299 price point. While the iPad Mini will eat into the sales of its big brother iPad, it should still prove exceptionally popular with those looking to get their feet wet with their first tablet.

We expect that Apple will end production of the 16GB second generation iPad that it has been offering for $399 alongside the third generation models. We do expect, however, that Apple will continue to offer the 16GB third generation model at the low-end of the third generation offerings till the fourth generation iPads arrive.

It is now expected that the fourth generation will arrive in October, along with a new lighter long-life battery, an improved screen and a rumored new camera placement. According to sources, Apple is already sourcing parts for the fourth generation and the new iPad Mini, and is preparing to launch into actual building of the units soon.