It is hoped the successor will have a better reception than the much-maligned Vista OS, released last year.
Scheduled for release in 2009 the new fingertip interface lets users enlarge and shrink photos, trace routes on maps, paint pictures or play the piano.
"The way you interact with the system will change dramatically," said Microsoft chairman Bill Gates.
Speaking at the All Things Digital conference in San Diego, the Microsoft Chairman said Windows 7 would incorporate new forms of communication and interaction.
"Today almost all the interaction is keyboard-mouse. Over years to come, the role of speech, vision, ink - all of those things - will be huge."
Chief executive Steve Ballmer described the limited demo of the multi touch screen at the conference as "a small snippet" of the next version of Windows after admitting he wants "to do better" than Vista.
Even though Vista has suffered from a poor public image and a lukewarm welcome from many firms and users, Mr Ballmer said the company has shipped 150 million copies of the programme.