Due to the current advances in simulation, computer graphics, robotics, and other related technologies, virtual environment has become a future trend in design and development of new products. This paper summarizes the current enabling technologies to develop a virtual environment for parts handling applications, such as parts feeding, assembling, and robotic grasping. A special focus is on developing a physically-based simulation system, which is the core of a virtual parts handling environment. Critical technologies such as object collision detection and response, contact modeling and friction modeling are reviewed. The technological challenges in these areas are also pointed out.