Ideally, neuronal functions would be studied by performing experiments with unconstrained animals whilst they behave in their natural environment. Although this is not feasible currently for most animal models, one can mimic the natural environment in the laboratory by using a virtual reality (VR) environment. Here we present a novel VR system based upon a spherical projection of computer generated images using a modified commercial data projector with an add-on fish-eye lens. This system provides equidistant visual stimulation with extensive coverage of the visual field, high spatio-temporal resolution and flexible stimulus generation using a standard computer. It also includes a track-ball system for closed-loop behavioural experiments with walking animals. We present a detailed description of the system and characterize it thoroughly. Finally, we demonstrate the VR system's performance whilst operating in closed-loop conditions by showing the movement trajectories of the cockroaches during exploratory behaviour in a VR forest.