At the DVD Forum in Los Angeles, Microsoft demonstrated its external HD-DVD drive for the Xbox360.
The company did not, however, specify a launch date or a price for the drive, although it did drop hints.
The drive is expected to be ready by the end of the year, in time for Christmas.
The senior program manager at Microsoft, Kevin Collins, who gave the demonstration of the HD-DVD drive, said that the drive would be one of the least expensive HD-DVD players available.
This is in part due to the fact that audio and video processing is done by the Xbox360, rather than the player itself.
As current HD-DVD players at the moment range around the $400-$500 price mark, some analysts predict that Microsoft’s drive will be around the $200.
Microsoft, in a dig at Sony, who is including a Blu-ray player in its PlayStation 3, said that it would offer the drive separately so that consumers had a choice between the two formats.
A Microsoft spokesperson told Pocket-lint, "Since launching Xbox we have retained a games first emphasis, but we also offer consumers the ability to build on our powerful platform, such as in combination with a Windows Media Center Edition PC.
"We feel that offering the drive externally is the best way to give consumers the ultimate choice to create their own high definition experience.
"We have no plans to release the Xbox 360 with an internal HD DVD drive."