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We form a new type of optical microcavity using 2D photonic crystals embedded in a half wavelength thick waveguide. Modes localized to a single defect in the photonic crystal can be theoretically shown to have small mode volumes. The flexibility in design of the photonic crystal enables one to tailor the device for vertical emission or for coupling into an in-plane waveguide. The added versatility in being able to etch the laser cavity may also help develop low threshold laser sources in material systems in which high index contrast epitaxial mirrors do not exist.