The operation of a new light modulation device that employs electric field controlled light scattering in an inhomogeneous medium is described. The orientation of a nematic liquid crystal, contained in micrometer sized inclusions in a nonabsorbing solid, is changed to produce a varying refractive index. When the refractive index of the liquid crystal matches that of the solid, the composite medium is nonscattering and transparent. If the refractive indices do not match, the medium is scattering and opaque. High contrast ratios have been measured for transmitted light with a response time of a ∼1 ms. The application of this technique to passive display devices is discussed.