The development of modern optical instruments has evolved into a complex multi-disciplinary activity with the explosion of sophisticated applications. For specialized optical systems, the development of even a prototype has become a costly exercise. This paper presents a new concept of virtual prototyping for optical systems to minimize the development time, cost and risk. This process employs the computer-aided design and modeling tools to address the broad issues of system layout, optical and optomechanical design, structural and thermal analysis for the real operating environment, tolerance budgeting and optimization procedures. The Center for Applied Optics at the University of Alabama in Huntsville has developed the necessary computer interfaces between the various stages of optical system design, development and evaluation. As a common database is used for the optical and mechanical design and analyses, the possibility of a human error is eliminated while minimizing the time and effort required to accomplish these critical tasks. The virtual prototyping concept works in an iterative fashion to achieve the desired system performance at a minimum cost. This technique has been successfully employed in the design and development of several optical instruments for space, military and commercial applications, covering a broad spectrum from UV to IR. The performance specifications and the results of virtual prototyping for some typical systems are also presented.