CONTACT:  Lynn O'Mara
                      Irvine Sensors Corporation
                      714-444-8718
                      lomara@irvine-sensors.com

COSTA MESA, CALIFORNIA - July 23, 2001 - Irvine Sensors Corporation (NASDAQ: IRSN, Boston Stock Exchange: ISC) today announced that it has entered into a non-binding letter-of-intent describing preliminary terms for $55 million of financing to support the business plans of Irvine Sensors (ISC) and, in particular, its iNetWorks Corporation subsidiary. The financing will be led by an independent investment firm newly organized to invest in companies with significant, paradigm-shifting and/or disruptive technologies, products, and services in electronics, communications, displays, software, and media.

The proposed financing contemplates the issuance of a new class of Irvine Sensors preferred stock, which will be convertible either into common shares of Irvine Sensors or iNetWorks at the option of the holder, or automatically upon the earlier of an initial public offering of iNetWorks or September 30, 2006. Based on the current fully-diluted capital structure of ISC and iNetWorks, conversion of the preferred stock will represent an approximate 79% ownership interest in either entity, with protection against dilution except as a result of subsequent rounds of financing at higher prices. The investment firm and Irvine Sensors have agreed to explore mechanisms for potential rights offerings to ISC's current stockholders to provide a means to offset dilution and allow for stockholder participation in the iNetWorks opportunity. Until the next annual meeting, holders of the new preferred will have three seats on the Irvine Sensors Board of Directors and five seats on the iNetWorks Board of Directors, both of which will be expanded to nine seats. The transaction is subject to a number of contingencies including the arrangement of financing satisfactory to the lead investment firm, the satisfactory completion of on-going due diligence, the negotiation and execution of the final terms of a formal stock purchase agreement and the approval of the terms of the transaction by Irvine Sensors' stockholders. In the event the transaction is not consummated under certaincircumstances, Irvine Sensors has agreed to pay the new investor firm a "breakup" fee of $1 million in cash or common stock. The terms of the transaction are subject to change.

Irvine Sensors currently expects to schedule a special meeting of its stockholders to approve the transaction before September 30, 2001 and to consummate the transaction on or before October 31, 2001.

iNetWorks is developing a telecommunications router product for potential introduction in 2002-2003 that combines Irvine Sensors' 3-dimensional (3-D) chip stacking and interconnect structures with superconducting electronics resulting in significant advantages in terms of throughput, power, operational flexibility and economics. iNetWorks is presently co-located with its parent, Irvine Sensors Corporation, in Costa Mesa, California.

Except for historical information contained herein, the matters set forth in this news release are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements are dependent on risks and uncertainties including such factors, among others, as the ability of the Company to control and further reduce its operating expense, the technological risk in new products and the impact of competition. The Company undertakes no obligation to publicly release the results of any revision to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Further information on the Company's status and the matters discussed herein are contained in publicly-filed disclosures available through the SEC's EDGAR data base (www.sec.gov) or the Company's Shareholder Relations.