Abstract: The interactive toy includes a speech synthesizer for converting digital data representative of speech into audible synthesized speech; an infra-red transceiver for wirelessly communicating infra-red messages over a field-of-view to a second toy; a microphone; and a selector for selecting between a transmission mode and a stand-alone mode. The toy is programmed so that, in the transmission mode, it receives a first infra-red signal from a second toy identifying a synthesized speech phrase generated by the second toy, supplies selected digital speech data representative of a reply synthesized speech phrase to the speech synthesizer in response to the first signal, and transmits a second infra-red signal to the second toy indicative of the selected reply phrase. In the stand-alone mode, the toy monitors the microphone for sound input, and supplies selected digital speech data to the speech synthesizer after the sound input has ceased.