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Linda Smith walked on stage at the Spring 2011 Demo Conference in Palm Desert, Calif., on Feb. 28 and tried on clothes. Looking at herself in an interactive mirror, she tested out virtual dresses, handbags, and jewelry. The interactive “fitting room,” called Swivel, is a mix of software created by her company, FaceCake Marketing Technologies of Calabasas, Calif., and a hacked 3D camera from Microsoft’s (MSFT) Kinect gaming console.

Kinect started out as a controller-free gaming system, but developers such as FaceCake are writing new applications for the system’s 3D camera. Kinect cameras essentially transform computers into two-way mirrors whose system can see users. One potential use of Kinect is making accurate 3D models of people to help them purchase everything from swimsuits to jeans online.

In 2011, 148.1 million shoppers, or about 83 percent of U.S. Internet users ages 14 and older, will make a purchase online, according to eMarketer. In the first quarter of 2011, retail e-commerce sales totaled $46 billion, according to the Census Bureau of the U.S. Commerce Dept. Yet almost 38 percent of women don’t buy online, according to Forrester Research (FORR), because they want to be able to see and touch items before they hand over a credit card. Retailers have tried to help shoppers overcome reservations with new visualization tools such as augmented reality, which lets customers try on clothes virtually, according to eMarketer. “The more lifelike you can make your e-commerce experience, the better that experience will be,” says Noah Elkin, principal analyst at eMarketer. “If you’re a retailer, it will make your site a more persuasive place to go to make that purchase.”

In the retail sector, companies have been experimenting with two-dimensional augmented-reality applications that let customers try on clothes virtually. Last Sept. 10, Macy’s (M) installed a Magic Fitting Room in its Herald Square Store in New York. Within minutes, shoppers were trying on the most popular tops, dresses, and jackets, creating as many as 16 outfits that could be stored in a digital closet and then shared on Facebook and by e-mail. Over the next six weeks, more than 16,000 fitting sessions were completed, according to the maker of the Magic Fitting Room, digital marketing and technology agency LBI International (LBI:NA).

Similarly in April, Swiss watchmaker Tissot ran an interactive display in a Harrods window, inviting passersby to try on watches. Mobile apps also let EBay (EBAY) shoppers try on sunglasses or outfits superimposed on photos of themselves. Still, these efforts lack the depth of 3D images.