This paper describes a combined haptic and graphical interactive system in which a grasped handle is levitated and controlled so that its dynamic rigid-body motion and the forces and torques generated upon it match those of a tool in a real-time simulated environment, displayed on a thin screen on top of the levitation coils and underneath the levitated handle. In this augmented reality configuration, the haptic sensations delivered to the hand of the user and the displayed simulation graphics are perceived in the same location, and the graphical display of the tool acts as a virtual extension of the grasped handle into the displayed simulated environment. The novelty of the system is that it combines iron core levitation coils with a low-cost position sensing system and co-located display in a portable system. The high closed-loop control bandwidth and precise position sensing of the system enable interactive simulated environments to be presented with a convincing degree of realism. The interactive environments to be demonstrated will include 3D rigid-body dynamics, surface contacts with stiffness and damping, and surface texture and friction.