A US patent filing reveals that the device would allow a user to interact wirelessly with a system in a 2D or holographic environment.
The device would also be able to communicate directly to other 'wand' units, and would include biometric sensors to recognise known operators, according to reports on TechFlash.
"The architecture can utilise one or more from a collection of sensors to determine an orientation or gesture in connection with the wand, and can further issue an instruction to update the state of an environmental component based on the orientation," reads the filing.
"In addition, the architecture can include an advisor component to provide contextual and/or comprehensive guidance in an intuitive manner."
Early signs indicate that the device could be used for gaming. The description is similar to that of the Nintendo Wii controller, and among the names listed on the patent is J Allard, a Microsoft executive widely credited for his work on the development of the Xbox business unit.
The 'magic wand' could also have uses outside the consumer space. Microsoft has recently been experimenting with touch-screen technologies for use in service console and kiosk tools, such as the Microsoft Surface table-top system.