Called RoomAlive it uses projectors and depth cameras to work out the dimensions of a room so any surface within it can be used as a display on which to show images.
The ceiling-mounted cameras keep an eye on people moving round in the space to work out how they interact with projected objects.
Demonstrations created by the research team show players shooting and hitting creatures appearing on walls or dodging virtual projectiles fired across the room.
One demo shows a player controlling a small projected robot that shoots foes appearing from behind furniture.
Another shows virtual creatures scurrying over surfaces in the room and projects video that appears to turn a carpet into a fast flowing river.
Microsoft said the video was made to demonstrate the possibilities of augmented gaming and, so far, it had no plans to turn the system into a commercial product.
Source: BBC News
