SpaceShipTwo Credit - © Mark Wade

Development of the much larger SpaceShipTwo suborbital commercial manned spacecraft was announced in July 2005. The reusable, six-passenger spacecraft was to begin flight test in 2007 and begin commercial operations from New Mexico in 2008.

In July 2005 Scaled Composites and Virgin Galactic, a subsidiary of the Virgin Group of Companies, announced the formation of a joint venture called The Spaceship Company. The purpose of The Spaceship Company was to oversee the development and production of SpaceShipTwo, a commercial suborbital spacecraft based on technology developed for SpaceShipOne. The joint venture would contract out the production of up to five SpaceShipTwo vehicles to Scaled Composites; those vehicles would be sold to Virgin Galactic, which planned to put them into commercial service offering suborbital space tourism flights starting in 2008. The venture would also develop a carrier aircraft, White Knight 2, that would be used to air-launch SpaceShipTwo in much the same manner that the original White Knight aircraft air-launched SpaceShipOne. The spacecraft was a scaled-up version of SpaceShipOne, capable of carrying 2 pilots and six passengers on suborbital spaceflights to altitudes over 100 kilometers.

On 13 December 2005, it was announced that Virgin Galactic would undertake a joint venture with the New Mexico state government to construct Spaceport America, a $225 million facility to be located near Upham, New Mexico. The venture was approved by the state legislature and the funding plans signed into law by governor Bill Richardson on 1 March 2006. Virgin Galactic was to be the first customer to operate manned spacecraft from this facility.

Six months of intensive testing of the spacecraft (comprising at least 50-100 test flights) was planned for 2007. Suborbital flights would last three hours overall, with seven minutes of weightlessness. It was intended that passengers would be able to release themselves from their seats and float around the cabin to truly experience weightlessness.

Contrary to press reports, the hybrid rocket engine for SpaceShipTwo was being developed internally by Rutan's Scaled Rocket Propulsion Team.

Crew Size: 8. Main Engine: Scaled Composites Hybrid. Main Engine Propellants: N2O/Solid. Spacecraft delta v: 2,000 m/s (6,500 ft/sec).