Funny you should ask... this was posted on Hackaday this week:http://hackaday.com/2011/08/11/keeping-tabs-on-your-tabby-with-a-camera-and-gps/ It's a little bit bigger than keyfob sized, but does the job and is a good start for your project if you want to make it smaller.
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The biggest challenge would be in building a GPS receiver small enough and light-weight enough and able to run on a small enough battery. Given that some cell phones are now GPS-enabled, I would guess that the answer is "Yes, there is probably a way to do so, or at least to approach that size."Whether it's possible to homebrew one is a different question. I'm guessing it would need to be surface-mount components, very densly arranged on the circuit board., assuming you can design the circuit and get the components.