Although the offices of IBM and Hewlett-Packard are nearby, Longmont, CO, is decidedly not Silicon Valley chic. But in this Denver suburb, a radical experiment in data storage is under way. At the headquarters of InPhase Technologies, where the conference rooms are named after ski resorts, chief executive Nelson Diaz holds up a clear plastic disc, about the size of a DVD but thicker, and pops it into a disc drive. A laptop connected to the drive downloads streaming video of an old episode of Seinfeld as the drive writes it to the disc.

But this is no ordinary recording process. The disc has more than 60 times the storage capacity of a standard DVD, while the drive writes about 10 times faster than a conventional DVD burner. That means the disc can store up to 128 hours of video content -- almost twice enough for the full nine seasons of Seinfeld -- and records it all in less than three hours.

It's likely to be one of the first commercial systems to use "holographic storage," in which bits are encoded in a light-sensitive material as the three-dimensional interference pattern of lasers. Unlike CDs and DVDs, which store data bit by bit on their surfaces, holographic discs store data a page at a time in three dimensions, enabling huge leaps in capacity and access speed. And InPhase, a 70-person startup spun out of Lucent Technologies' Bell Labs in Murray Hill, NJ, is leading a handful of companies racing to commercialize this optical storage breakthrough.

Three-dimensional memory could dramatically change how we use microelectronics. Many of the remarkable advances in consumer electronics over the last few years -- and much of the economic health of the industry -- are directly traceable to the explosion in storage capacity. Web e-mail services routinely offer each of their customers a gigabyte of memory for free. Apple's newest iPod is only possible because of small, cheap hard drives that can hold a staggering 60 gigabytes of data -- a storage capacity that just five years ago would have been a lot for a desktop PC.

Likewise, cell phones now come with flash memory chips easily able to store address books, calendars, photos, and the like. Meanwhile, CDs and DVDs have already transformed how people listen to music and watch movies. But each of these storage technologies has drawbacks. The density of magnetic materials in hard drives is fast approaching a fundamental physical limit. Flash memory is slow, and a DVD is barely large enough to hold a full-length movie.

Storing data in three dimensions would overcome many of these limitations. Indeed, the theoretical promise of holographic storage has been talked about for 40 years. But advances in smaller and cheaper lasers, digital cameras, projector technologies, and optical recording materials have finally pushed the technology to the verge of the market. And the ability to cram exponentially more bits into infinitesimal spaces could open up a whole new realm of applications.

By storing and reading out millions of bits at a time, a holographic disc could hold a whole library of films. Movies, video games, and location-based services like interactive maps could be put on postage-stamp-size chips and carried around on cell phones. A person's entire medical history, including diagnostic images like x-rays, could fit on an ID card and be quickly transmitted to or retrieved from a database.

Eventually, if the hardware becomes affordable for consumers, holographic storage could supplant DVDs and become the dominant medium for games and movies. Portable movie players and phones that download multimedia from the Web would take off. Holographic storage could even compete with the magnetic hard drive as the computer's fundamental storage unit. And on a larger scale, corporate and government data centers could replace their huge, raucous storerooms of server racks and magnetic-tape reels with the quiet hum of holographic disc drives.

InPhase's competitive edge lies in its partnerships with Hitachi Maxell, a leading producer of computer tapes and CD-ROMs, and -- as of this May -- Bayer MaterialScience, one of the world's largest makers of plastics used in optical discs. These large corporations see holographic techniques as the next step in the evolution of storage. "Our collaboration with InPhase gives us a tremendous opportunity," says Hermann Bach, head of technologies for the Americas at Bayer MaterialScience.

But if and when holographic storage will come to dominate the market is still an open question. InPhase's initial product launch is slated for late 2006, but industry experts, while optimistic, are also cautious. "They have made numerous contributions on the hardware side, in media and materials, and in error correction," says Hans Coufal, manager of science and technology strategy at IBM's Almaden Research Center in San Jose, CA, and an expert on holographic storage. "It's very impressive but still some ways away from a viable product. Not a long ways, but some ways."