In this article, the successful implementation of a development cycle for a physics teaching package based on game-like virtual reality software is reported. The cycle involved several iterations of evaluating students' use of the package followed by instructional and software development. The evaluation used a variety of techniques, including ethnographic observation, surveys, student focus groups and conventional assessment. The teaching package included a laboratory manual, instructional support materials and the "Real Time Relativity" software that simulates a world obeying special relativistic physics. Although the iterative development cycle was time consuming and costly, it gave rise to substantial improvements in the software user interface and in the students' learning experience. (Contains 5 figures and 3 tables.)