It says its "Mesh" platform will let people meet in the virtual space, with or without a virtual reality headset.
Microsoft says the new features, which it is calling "immersive meetings" will be available in the first half of 2022.
It comes after Facebook showcased similar virtual chat rooms as part of its rebrand to name itself Meta.
While there is no single strict definition of what a "metaverse" will be, most versions envision a future version of the internet with a diverse range of interconnected virtual worlds, covering everything from gaming to education.
Both Microsoft and Meta are pitching 3D chat and collaboration, as a key part of their initial pitchTeams is Microsoft's business chat and video call app, similar to Zoom or Google Meet, and a version is also available for personal users.
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Microsoft, however, is focusing less on the need for a virtual reality (VR) or augmented reality (AR) headset, though it will support them
The 3D avatars, for example, will be able to represent a person in a remote Teams meeting when they do not want to turn on their webcam, and can appear on a normal two-dimensional computer screen.
The company said its system will "use AI to imitate movements and gestures that enable you to bring your physical presence into the conversation, even when your camera is off".
Too many people, too much of the time, are a static picture or bubble with initials," wrote Microsoft's John Roach in a blog post.
The avatars will also be able to animate the movement of a mouth when a microphone picks up the user speaking, to "bring additional expressivity", he sai
Companies and organisations will be able to create their own 3D spaces for meetings to their own designs, which will also work in 2D or 3
For those who do own a suitable VR or AR headset, Microsoft plans to allow people to move around the virtual environments using the technology, but it is not require
It said the system had been tested out with thousands of new hires at consultancy firm Accenture, which has been using the system to "onboard" employees during the pandemi
Microsoft has its own AR technology wing, which makes a headset known as the Hololens. But, unlike Facebook's Oculus or Valve's Index VR gaming headsets, it is marketed towards business customer
It serves a different purpose, mixing digital overlays with real-world vision, and costs significantly more, with prices in the thousands of dollars
The company says its initial augmented reality push was designed to be used by 3D designers, collaborating on "everything from bicycles and high-end furniture to new jet engines and sports stadiums".
It says that bringing the Mesh platform to Teams is a "gateway to the metaverse" and it believes that people who try out what it thinks is a more expressive, immersive space, will prefer it to the traditional way of remote meeting.
Microsoft chief executive Satya Nadella, explaining the new systems at Microsoft's Ignite event, said: "What's most important is that we are able to bring our humanity with us, and choose how we want to experience this world.
"The metaverse is not just transforming how we see the world, it's changing how all of us actively participate in it."