Entanglement-based technologies, such as quantum information processing, quantum simulations, and quantum-enhanced metrology, have the potential to revolutionise our way of computing and measuring and help clarifying the puzzling concept of entanglement itself. Ultracold atoms on atom chips are attractive for their implementation, as they provide control over quantum systems in compact, robust, and scalable setups. An important tool in this system is a potential depending on the internal atomic state. Coherent dynamics in this potential combined with collisional interactions allows entanglement generation both for individual atoms and ensembles. Here, we demonstrate coherent manipulation of Bose-condensed atoms in such a potential, generated in a novel way with microwave near-fields on an atom chip. We reversibly entangle atomic internal and motional states, realizing a trapped-atom interferometer with internal-state labelling. Our system provides control over collisions in mesoscopic condensates, paving the way for on-chip generation of many-particle entanglement and quantum-enhanced metrology with spin-squeezed states. ; Comment: 9 pages, 6 figures