Abstract: This paper presents a per-pixel ray tracing algorithm with dynamic lighting of surfaces in real-time on the GPU. First, we propose a method for increased precision of the critical ray-height field intersection and adaptive height field sampling. We achieve higher quality results than the existing inverse displacement mapping algorithms. Second, soft shadows are computed by estimating light visibility for the displaced surfaces. Third, we describe an adaptive level-of-detail system which uses the information supplied by the graphics hardware during rendering to automatically manage shader complexity. This LOD scheme maintains smooth transitions between the full displacement computation and a simplified representation at a lower level of detail without visual artifacts. The algorithm performs well for animated objects and supports dynamic rendering of height fields for a variety of interesting displacement effects. The presented method is scalable for a range of consumer grade GPU products. It exhibits a low memory footprint and can be easily integrated into existing art pipelines for games and effects rendering.