A dual-rate (2 Gbit/s and 100 Mbit/s) optical transceiver designed for power-efficient connections within and between modern high-speed digital systems is described. The transceiver can dynamically adjust its data rate according to performance requirements, allowing for power-on-demand operation. Dynamic power management permits energy saving and lowers device operating temperatures, improving the reliability and lifetime of optoelectronic-devices such as vertical-cavity surface-emitting lasers (VCSELs). To implement dual-rate functionality, we include in the transmitter and receiver circuits separate high-speed and low-power data path modules. The high-speed module is designed for gigabit operation to achieve high bandwidth. A simpler low-power module is designed for megabit data transmission with low power consumption. The transceiver is fabricated in a 0.5 microm silicon-on-sapphire complementary metal-oxide semiconductor. The VCSEL and photodetector devices are attached to the transceiver's integrated circuit by flip-chip bonding. A free-space optical link system is constructed to demonstrate correct dual-rate functionality. Experimental results show reliable link operation at 2 Gbit/s and 100 Mbit/s data transfer rates with approximately 104 and approximately 9 mW power consumption, respectively. The transceiver's switching time between these two data rates is demonstrated as 10 micros, which is limited by on-chip register reconfiguration time. Improvement of this switching time can be obtained by use of dedicated input-output pads for dual-rate control signals.