Step 1: Start with the given expression.
We need to simplify
\[
\sin^2\theta \cos^2\theta
\]
Step 2: Use the double angle identity.
We know that
\[
\sin 2\theta=2\sin\theta\cos\theta
\]
Step 3: Square both sides.
Squaring,
\[
\sin^2 2\theta=4\sin^2\theta\cos^2\theta
\]
Therefore,
\[
\sin^2\theta\cos^2\theta=\frac{1}{4}\sin^2 2\theta
\]
Step 4: Use the power reduction identity.
We know that
\[
\sin^2 A=\frac{1-\cos 2A}{2}
\]
Putting
\[
A=2\theta,
\]
we get
\[
\sin^2 2\theta=\frac{1-\cos 4\theta}{2}
\]
Step 5: Substitute this value.
Now,
\[
\sin^2\theta\cos^2\theta
=
\frac{1}{4}\cdot \frac{1-\cos 4\theta}{2}
\]
\[
=
\frac{1}{8}(1-\cos 4\theta)
\]
Step 6: Match with the options.
The obtained expression is
\[
\frac{1}{8}(1-\cos 4\theta)
\]
Step 7: Final conclusion.
Therefore,
\[
\boxed{\frac{1}{8}(1-\cos 4\theta)}
\]