The technology will allow users to control a screen with their fingers even from the other side of the room and put their hands through a screen to 'touch' objects.
Microsoft said it is has begun to create machines that move far beyond touchscreens.
Rico Malvar, Microsoft's chief scientist, said work has begun on new screens that can be manipulated without needing to approach a gadget.
The company is building an electronic bracelet that can detect movements in a person's fingers, allowing them to imitate the actions of poking and flicking the screen to operate a device.
The bracelet would allow people to operate a television despite having their back turned or control a mobile phone with their hands in their pockets, 'The Times' reported.
Microsoft has also unveiled new "interactive displays".
Among them is a "floating display", which gives the illusion of a globe spinning or a dragon flying, just inches above a flat monitor. Cameras and motion sensors then allow people to interact with these floating objects.
Another prototype allows someone sitting in front of a large screen to see a series of cubes. They can then slip their hands behind the device in order to "touch" these objects.
This device operates by surrounding a screen with cameras that can detect the user and their movements, matching them to on-screen items.
Tim Large, a researcher from Microsoft's Applied Sciences Group, said that final versions of these displays will be ready in two to five years.