This is at the high end of the market for "personal digital assistants" (PDA), but Microsoft chief executive Steve Ballmer says the high price will be made up for by "a little extra functionality".
Its new Pocket PC operating system replaces Windows CE, which failed to beat rivals Palm and Psion - but analysts warn the new machines could be too expensive to be a success.
With a desktop similar to that of PCs running Windows 95, the tiny screens of digital assistants were just too cluttered to be user-friendly.
Now Microsoft promises a completely new approach.
The software's code has been rewritten from scratch, and Pocket PC was designed in close co-operation with Microsoft's partners Compaq, Casio and Hewlett-Packard.
The first Pocket PC computers are expected to go on sale in June, priced between $499 and $599.
This is at the high end of the market for "personal digital assistants" (PDA), but Microsoft chief executive Steve Ballmer says the high price will be made up for by "a little extra functionality".
Targetting Palm
Pocket PC devices have the usual features of organisers like word processor, data base and diary, but include a colour screen, a fully functional web browser, e-mail, Microsoft's new ClearType technology to read books and a media player for audio and video files - including MP3.
Psion PDAs, which have been successful in Europe, and Palm Pilots, which dominate the US market, offer some of these functions, but not all of them.
The Palm Pilot VII, for example, has a wireless net connection, but allows access to only a few web sites - although it is cheaper at $449.
In its not very subtle marketing, Microsoft tries to exploit the difference. Full-page adverts in US newspapers showed a Palm Pilot III with the caption "Simple is what you call yourself when you don't have a lot to offer".
Market share
But while Microsoft is belittling its competitor, it is striving to emulate its rival. Pocket PC's interface has larger icons and fewer drop-down menus.
Despite the high price, some analysts believe that Pocket PC could make an impact.
"Palm ought to be running scared", said Michael Gartenberg, a senior analyst with Gartner Group, who points out that Palm has no apparent plans to include similar functionality in its PDAs.
In the United States, Pam currently has about 70% of the market, while Microsoft takes just 10%. In Europe, Palm is weaker, with a 40% market share, while Psion's Epoc software accounts for 28% and Windows CE for 27%, according to IDC figures.
But Microsoft is not in the clear yet. Palm owners may be reluctant to switch to Pocket PC, as only one of Microsoft's three partners is offering software that allows the transfer of data from their old Palm Pilots to the new machines.
And Pocket PC has another handicap, well known from other Microsoft software: Cheap Pocket PC devices are said to have barely enough memory to truly use the full functionality of the operating system.