Although other retailers run outlets in Second Life, visitors cannot purchase physical products without clicking through to the company's standard online store.
Iwoot.com's new Second Life island allows users to buy real items without having to step out of the virtual world.
Second Life has its own currency, Linden Dollars, which can be bought by residents with their own money using a PayPal account. Linden Dollars even have a quoted exchange rate against the US dollar.
Tim Booth, creative director at Iwoot.com, said: "This is a fantastic exercise for us. The new store gives us the opportunity to be imaginative and to experiment.
"We can explore which products are successful, and see whether the most popular items in the real world are also a hit in Second Life."
The Iwoot.com island comprises five buildings which spell out the company name when observed from above, taking up 65,536 square metres of virtual land and featuring a lighthouse, beach, maze and product gallery.
The letter 'i' contains a marketplace to which about a dozen of the most active and creative Second Life gadget builders will be invited to showcase and market their work, while the dot on the 'i' is represented by a lighthouse.
Iwoot.com will not charge residents or take any commission from their sales within the marketplace. Residents can send submissions for consideration to the company's 'Support IWOOT' avatar.
The 'w' houses the Iwoot.com shop where a selection of products will appear for purchase.
Visitors will send their avatar to the store, where they will be able to select whichever items they wish to purchase.
After taking their purchase to the virtual counter, their avatar will then pay for it in Linden Dollars from their Second Life account.
This means that shoppers only have to provide their delivery address and do not have to create an account with Iwoot.com to buy goods.
"A 3D virtual space is undoubtedly what the internet will become, even if it takes a few years to get there," said Booth.
"This project gives us the opportunity to see how much fun we can make our store in another dimension, unfettered by the laws of physics and where the only limit is our imagination."
Booth told vnunet.com that "shopping is not just a transaction" and that he sees the online shopping experience becoming much more like the high street where the ambience and social aspects are as much part of the experience as buying anything.
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