A new liquid crystal display (LCD) mode based on diffraction effects, which result from the application of lateral electric fields on the liquid crystal (LC) layer, is proposed in order to realize bright and high-contrast images in projection displays. The LC cell structure and its electro-optical characteristics are presented and its performance is compared to several other conventional liquid crystal display modes. In the new LCD, the upper and lower substrates support striped transparent electrodes which have a width and a pitch of 7 micrometers and 22 micrometers , respectively, for a typical case. The upper and lower electrodes are positioned parallel to each other and shifted by a half pitch, i.e. the upper electrodes are aligned with the spacings separating the lower electrodes. We refer to this design as the staggered inter-digital electrode configuration. Both substrates are coated with a polyimide layer rubbed in the direction perpendicular to the striped electrodes resulting in an anti-parallel LC alignment. In a typical cell, a nematic LC material with a positive dielectric anisotropy and a thickness of 5 micrometers are used. Lateral electric fields are generated between the upper and lower substrates and we therefore call this LC mode the Lateral Electric Field Diffraction (LEFD) mode. The transmission-voltage (T-V) curves of the LEFD liquid crystal cell were measured by using a polarized and unpolarized He-Ne laser beam ((lambda) equals 632.8 nm). The plane of incidence of the laser was set to be parallel or perpendicular to the longitudinal axis of the striped electrode and the transmitted light (zeroth order diffraction light) was measured by a photometer. The T-V curves did not show any dependence on the polarization of the incident light and no hysteresis was observed. The transmission was found to be about 80% when no voltage was applied. The threshold voltage was found to be about 1.8 volts and the voltage at which the minimum transmission occurred was 4.5 volts. The contrast ratio was calculated to be about 200:1. In the LEFD LCD, the effective indices of refraction in the directions both perpendicular and parallel to the striped electrodes are modified by the lateral electric field. Diffraction effects occur for all polarizations and it is therefore possible to obtain a high contrast ratio for unpolarized light. This means that the LEFD LCD does not require any polarizer. By combining this LEFD design with a schlieren optical system, it would be possible to create bright and high contrast images in projection displays. We think that the use of LEFD LCD is one of the most promising solutions to realize a very high performance in projection display systems.