The surface-micromachining technique has been employed to fabricate novel three-dimensional micro-optical elements for free-space integrated optics. The optical axes of these optical elements are parallel to the substrate, which enables the entire free-space optical system to be integrated on a single substrate. Microscale Fresnel lenses, mirrors, beam splitters, gratings, and precision optical mounts have been successfully fabricated and characterized. In addition, micropositioners such as rotary stages and linear translational stages are monolithically integrated with the optical components using the same surface-micromachining process to provide on-chip optical alignment or optomechanical switching. Self-aligned hybrid integration with semiconductor edge-emitting lasers and vertical cavity surface-emitting lasers are also demonstrated for the first time. This new free-space micro-optical bench (FSMOB) technology could significantly reduce the size, weight, and cost of most optical systems, and could have a significant impact on optical switching, optical sensing and optical data-storage systems as well as on the packaging of optoelectronic components.