We present a new tracking system for augmented reality and virtual set applications, based on an inertial navigation system aided by ultrasonic time-of-flight range measurements to a constellation of wireless transponder beacons. An extended Kalman filter operating on 1-D range measurements allows the inertial sensors to filter out corrupt range measurements and perform optimal smoothing and prediction, while at the same time using the pre-screened range measurements to correct the drift of the inertial system. The use of inside-out ultrasonic tracking allows for tetherless tracking over a building-wide range with no acoustic propagation latency. We have created a simulation to account for error sources in the ultrasonic ranging system. The fully implemented tracking system is tested and found to have accuracy consistent with the simulation results. The simulation also predicts that with some further compensation of transducer misalignment, accuracies better than 2 mm can be achieved.