A tool for use with a surgical navigation system includes a plurality of LEDs mounted to the distal end of the tool. The LED's provide an indication of the direction in which the tool must be moved to reach a desired position. Four LED's mounted along perpendicular axes are provided. Modes for indicating the desired location, orientation, rotation, and depth are provided. A mode indicator may also be provided. The tool is designed for use with a surgical navigation system which includes an infrared localizer and computer system. The indicators assist the surgeon in positioning the surgical tool in relation to the patient. Indicators other than LEDs may be used; the indicators may also be mounted in alternate locations in the operating room environment.