We describe a system which provides high-fidelity haptic feedback in the same physical location as a 3D graphical display, in order to enable realistic physical interaction with virtual anatomical tissue during modelled procedures such as needle driving, palpation, and other interventions performed using handheld instruments. The haptic feedback is produced by the interaction between an array of coils located behind a thin flat LCD screen, and permanent magnets embedded in the instrument held by the user. The coil and magnet configuration permits arbitrary forces and torques to be generated on the instrument in real time according to the dynamics of the simulated tissue by activating the coils in combination. A rigid-body motion tracker provides position and orientation feedback of the handheld instrument to the computer simulation, and the 3D display is produced using LCD shutter glasses and a head-tracking system for the user.