A new 3D interactive display system with embedded optical sensor has been proposed. This study focus on a lighting mode which uses LED light source as a 3D interactive device. Lighting mode is not affected by ambient light from the environment because extra LED is used. Changes of LED light shapes determine LED 3D coordinate in captured images are insufficient when LED position is in inclined direction or has a rotation angle. Therefore, a new algorithm was demonstrated to calculate LED position (X,Y,Z) where inclined angles were from θ=0° -∼ θ=40° and between 1cm∼5cm on 2.83 inch panel .Additionally, unlike the current 3D interactive systems, this paper proposed 3D interactive display can interact as 2D and 3D touch function simultaneously.