This paper presents the design, fabrication and tests of a miniature 1 × 2 mechanical type optical switch, whose components are fabricated by precision machining and MEMS technologies. The packaging and alignment are integral processes utilizing the CCD image processing technique and PZT-stages controlled technique in association with the optimization software enabling the fiber-to-fiber alignment to low optical loss requirement. Optical fibers in use have the following specifications: single-mode fiber (SMF) outer diameter 125 µm, core diameter 9 µm, zero degree of the fiber tip angle and non-anti-reflection coating. The initial gap of the input and output fibers is 10 µm. First, we produced a fiber holder and a V-groove by MEMS technology and used a relay as the input fiber switching actuator. Through proper mechanism design, the fiber positioning error can be reduced to below 0.1 µm. After the optimized alignment process, the results presented that the insertion loss could be controlled to ch1: 0.8 dB, ch2: 1.4 dB at a switching time of 5 ms. The reliability tests demonstrated that the variation of the insertion losses are ch1: 0.04 dB, ch2: 0.02 dB after 10 000 cycle times, and ch1: 0.024 dB, ch2: 0.006 dB throughout 100 switch times after 1 000 000 cycle times. The developed 1 × 2 optical switch largely reduces the physical size to 1/2–1/3 in comparison with traditional mechanical optical switches, and the cost is only about 1/10–1/20 of the MEMS type optical switches. The advantages of this innovative optical switch are: small size (only about 20 × 16 × 7.5 mm3), low cost (only about US$10), high reliability, cross-talk ≦ −80 dB and automatic alignment.