<PAGE>

                                                                    EXHIBIT 10.1

                              INDEMNITY AGREEMENT


     This Indemnity Agreement, dated as of ______________, is made by and
between PACIFIC GATEWAY EXCHANGE, INC., a Delaware corporation (the "Company"),
and ______________________ (the "Indemnitee").


                                    RECITALS
                                    --------

     A.   The Company is aware that competent and experienced persons are
increasingly reluctant to serve as directors, officers or agents of corporations
unless they are protected by comprehensive liability insurance or
indemnification, due to increased exposure to litigation costs and risks
resulting from their service to such corporations, and due to the fact that the
exposure frequently bears no reasonable relationship to the compensation of such
directors, officers and other agents.

     B.   The statutes and judicial decisions regarding the duties of directors
and officers are often difficult to apply, ambiguous, or conflicting, and
therefore fail to provide such directors, officers and agents with adequate,
reliable knowledge of legal risks to which they are exposed or information
regarding the proper course of action to take.

     C.   Plaintiffs often seek damages in such large amounts and the costs of
litigation may be so enormous (whether or not the case is meritorious), that the
defense and/or settlement of such litigation is often beyond the personal
resources of directors, officers and other agents.

     D.   The Company believes that it is unfair for its directors, officers and
agents and the directors, officers and agents of its subsidiaries to assume the
risk of huge judgments and other expenses which may occur in cases in which the
director, officer or agent received no personal profit and in cases where the
director, officer or agent was not culpable.

     E.   The Company recognizes that (i) the issues in controversy in
litigation against a director, officer or agent of a corporation such as the
Company or its subsidiaries are often related to the knowledge, motives and
intent of such director, officer or agent, (ii) the director usually is the only
witness with knowledge of the essential facts and exculpating circumstances
regarding such matters, (iii) the long period of time which usually elapses
before the trial or other disposition of such litigation often extends beyond
the time that the director, officer or agent can reasonably recall such matters
and may extend beyond the normal time for retirement for such director, officer
or agent with the result that, after retirement or in the event of death, such
director's spouse, heirs, executors or administrators, may be faced with limited
ability and undue hardship in maintaining an adequate defense and (iv) any or
all of the above may discourage such a director, officer or agent from serving
in that position.
<PAGE>

     F.   Based upon their experience as business managers, the Board of
Directors of the Company (the "Board") has concluded that, to retain and attract
talented and experienced individuals to serve as directors, officers and agents
of the Company and its subsidiaries and to encourage such individuals to take
the business risks necessary for the success of the Company and its
subsidiaries, it is necessary for the Company to contractually indemnify its
directors, officers and agents and the directors, officers and agents of its
subsidiaries, and to assume for itself maximum liability for expenses and
damages in connection with claims against such directors, officers and agents in
connection with their service to the Company and its subsidiaries, and has
further concluded that the failure to provide such contractual indemnification
could result in great harm to the Company and its subsidiaries and the Company's
stockholders.

     G.   Section 145 of the General Corporation Law of Delaware, under which
the Company is organized ("Section 145"), empowers the Company to indemnify its
directors, officers, employees and agents by agreement and to indemnify persons
who serve, at the request of the Company, as the directors, officers, employees
or agents of other corporations or enterprises, and expressly provides that the
indemnification provided by Section 145 is not exclusive.

     H.   The Company desires and has requested the Indemnitee to serve or
continue to serve as a director, officer or agent of the Company and/or one or
more subsidiaries of the Company free from undue concern for claims for damages
arising out of or related to such services to the Company and/or one or more
subsidiaries of the Company.

     I.   Indemnitee is willing to serve, or to continue to serve, the Company
and/or one or more subsidiaries of the Company, provided that he is furnished
the indemnity provided for herein.

                                   AGREEMENT
                                   ---------

     NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:

     1.   Definitions.
          -----------

          a.   Agent.  For the purposes of this Agreement, "agent" of the
               -----
Company means any person who is or was a director, officer, employee or other
agent of the Company or a subsidiary of the Company; or is or was serving at the
request of, for the convenience of, or to represent the interests of the Company
or a subsidiary of the Company as a director, officer, employee or agent of
another foreign or domestic corporation, partnership, joint venture, trust or
other enterprise; or was a director, officer, employee or agent of a foreign or
domestic corporation which was a predecessor corporation of the Company or a
subsidiary of the Company, or was a director, officer, employee or agent of
another enterprise at the request of, for the convenience of, or to represent
the interests of such predecessor corporation.

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          b.   Expenses.  For purposes of this Agreement, "expenses" include all
               --------
direct or indirect costs of any type or nature whatsoever (including, without
limitation, all attorneys' fees and related disbursements, other out-of-pocket
costs and reasonable compensation for time spent by the Indemnitee for which he
is not otherwise compensated by the Company or any third party) actually and
reasonably incurred by the Indemnitee in connection with either the
investigation, defense or appeal of a proceeding or establishing or enforcing a
right to indemnification under this Agreement or Section 145 or otherwise;
provided, however, that "expenses" shall not include any judgments, fines, ERISA
excise taxes or penalties, or amounts paid in settlement of a proceeding.

          c.   Proceeding.  For purposes of this Agreement, "proceeding" means
               ----------
any threatened, pending, or completed action, suit or other proceeding, whether
civil, criminal, administrative, or investigative.

          d.   Subsidiary.   For purposes of this Agreement, "subsidiary" means
               ----------
any corporation of which more than 50% of the outstanding voting securities is
owned directly or indirectly by the Company, by the Company and one or more
other subsidiaries, or by one or more other subsidiaries.

     2.   Agreement to Serve.  The Indemnitee agrees to serve and/or continue to
          ------------------
serve as agent of the Company, at its will (or under separate agreement, if such
agreement exists), in the capacity Indemnitee currently serves as an agent of
the Company, so long as he is duly appointed or elected and qualified in
accordance with the applicable provisions of the Bylaws of the Company or any
subsidiary of the Company or until such time as he tenders his resignation in
writing; provided, however, that nothing contained in this Agreement is intended
to create any right to continued employment by Indemnitee.

     3.   Liability Insurance.
          -------------------

          a.   Maintenance of D&O Insurance.  The Company hereby covenants and
               ----------------------------
agrees that, so long as the Indemnitee shall continue to serve as an agent of
the Company and thereafter so long as the Indemnitee shall be subject to any
possible proceeding by reason of the fact that the Indemnitee was an agent of
the Company, the Company, subject to Section 3(c), shall promptly obtain and
maintain in full force and effect directors' and officers' liability insurance
("D&O Insurance") in reasonable amounts from established and reputable insurers.

          b.   Rights and Benefits.  In all policies of D&O Insurance, the
               -------------------
Indemnitee shall be named as an insured in such a manner as to provide the
Indemnitee the same rights and benefits as are accorded to the most favorably
insured of the Company's directors, if the Indemnitee is a director; or of the
Company's officers, if the Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, if the Indemnitee is not a director
or officer but is a key employee.

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          c.   Limitation on Required Maintenance of D&O Insurance.
               ---------------------------------------------------
Notwithstanding the foregoing, the Company shall have no obligation to obtain or
maintain D&O Insurance if the Company determines in good faith that such
insurance is not reasonably available, the premium costs for such insurance are
disproportionate to the amount of coverage provided, the coverage provided by
such insurance is limited by exclusions so as to provide an insufficient
benefit, or the Indemnitee is covered by similar insurance maintained by a
subsidiary of the Company.

     4.   Mandatory Indemnification.  Subject to Section 9 below, the Company
          -------------------------
shall indemnify the Indemnitee as follows:

          a.   Successful Defense.  To the extent the Indemnitee has been
               ------------------
successful on the merits or otherwise in defense of any proceeding (including,
without limitation, an action by or in the right of the Company) to which the
Indemnitee was a party by reason of the fact that he is or was an agent of the
Company at any time, against all expenses of any type whatsoever actually and
reasonably incurred by him in connection with the investigation, defense or
appeal of such proceedings.

          b.   Third Party Actions.  If the Indemnitee is a person who was or is
               -------------------
a party or is threatened to be made a party to any proceeding (other than an
action by or that is the right of the Company) by reason of the fact that he is
or was an agent of the Company, or by reason of anything done or not done by him
in any such capacity, the Company shall indemnify the Indemnitee against any and
all expenses and liabilities of any type whatsoever (including, but not limited
to, judgments, fines, ERISA excise taxes and penalties, and amounts paid in
settlement) actually and reasonably incurred by him in connection with the
investigation, defense, settlement or appeal of such proceeding, provided the
Indemnitee acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Company and its stockholders, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful.

          c.   Derivative Actions.  If the Indemnitee is a person who was or is
               ------------------
a party or is threatened to be made a party to any proceeding by or that is the
right of the Company by reason of the fact that he is or was an agent of the
Company, or by reason of anything done or not done by him in any such capacity,
the Company shall indemnify the Indemnitee against any amounts paid in
settlement of any such proceeding and all expenses actually and reasonably
incurred by him in connection with the investigation, defense, settlement, or
appeal of such proceeding, provided the Indemnitee acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Company and its stockholders.  The Company shall indemnify the Indemnitee
against judgments, fines, and ERISA excise taxes and penalties to the same
extent and subject to the same conditions as described in the immediately
preceding sentence.  Notwithstanding the foregoing, no indemnification under
this subsection 4(c) shall be made in respect to any claim, issue or matter as
to which such person shall have been finally adjudged to be liable to the
Company by a court of competent jurisdiction unless and only to the extent that
the court in which such proceeding was brought shall determine upon application
that, despite the adjudication of liability but in view of all of the
circumstances of the case, such

                                      -4-
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person is fairly and reasonably entitled to indemnity for such amounts which the
court shall deem proper.

          d.   Actions where Indemnitee is Deceased.  If the Indemnitee is a
               ------------------------------------
person who was or is a party or is threatened to be made a party to any
proceeding by reason of the fact that he is or was an agent of the Company, or
by reason of anything done or not done by him in any such capacity, and if prior
to, during the pendency of or after completion of such proceeding Indemnitee
becomes deceased, the Company shall indemnify the Indemnitee's heirs, executors
and administrators against any and all expenses and liabilities of any type
whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes
and penalties, and amounts paid in settlement) actually and reasonably incurred
to the extent Indemnitee would have been entitled to indemnification pursuant to
Sections 4(a), 4(b), or 4(c) above were Indemnitee still alive.

          e.   Notwithstanding the foregoing, the Company shall not be obligated
to indemnify the Indemnitee for expenses or liabilities of any type whatsoever
(including, but not limited to, judgments, fines, ERISA excise taxes and
penalties, and amounts paid in settlement) for which payment is actually made to
Indemnitee under a valid and collectible insurance policy of D&O Insurance, or
under a valid and enforceable indemnity clause, by-law or agreement.

     5.   Partial Indemnification.  If the Indemnitee is entitled under any
          -----------------------
provision of this Agreement to indemnification by the Company for some or a
portion of any expenses or liabilities of any type whatsoever (including, but
not limited to, judgments, fines, ERISA, excise taxes and penalties, and amounts
paid in settlement) incurred by him in the investigation, defense, settlement or
appeal of a proceeding, but not entitled, however, to indemnification for all of
the total amount hereof, the Company shall nevertheless indemnify the Indemnitee
for such total amount except as to the portion hereof to which the Indemnitee is
not entitled.

     6.   Mandatory Advancement of Expenses.  Subject to Section 8(a) below, the
          ---------------------------------
Company shall advance all expenses incurred by the Indemnitee in connection with
the investigation, defense, settlement or appeal of any proceeding to which the
Indemnitee is a party or is threatened to be made a party by reason of the fact
that the Indemnitee is or was an agent of the Company.  Indemnitee hereby
undertakes to repay such amounts advanced only if, and to the extent that, it
shall be determined ultimately that the Indemnitee is not entitled to be
indemnified by the Company as authorized hereby.  The advances to be made
hereunder shall be paid by the Company to the Indemnitee within twenty (20) days
following delivery of a written request therefor by the Indemnitee to the
Company.

     7.   Notice and Other Indemnification Procedures.
          -------------------------------------------

          a.   Promptly after receipt by the Indemnitee of notice of the
commencement of or the threat of commencement of any proceeding, the Indemnitee
shall, if the Indemnitee believes that indemnification with respect thereto may
be sought from the Company under this Agreement, notify the Company of the
commencement or threat of commencement thereof.

                                      -5-
<PAGE>

          b.   If, at the time of the receipt of a notice of the commencement of
a proceeding pursuant to Section 7(a) hereof, the Company has D&O Insurance in
effect, the Company shall give prompt notice of the commencement of such
proceeding to the insurers in accordance with the procedures set forth in the
respective policies.  The Company shall thereafter take all necessary or
desirable action to cause such insurers to pay, on behalf of the Indemnitee, all
amounts payable as a result of such proceeding in accordance with the terms of
such policies.

          c.   In the event the Company shall be obligated to pay the expenses
of any proceeding against the Indemnitee, the Company, if appropriate, shall be
entitled to assume the defense of such proceeding, with counsel approved by the
Indemnitee, upon the delivery to the Indemnitee of written notice of its
election so to do.  After delivery of such notice, approval of such counsel by
the Indemnitee and the retention of such counsel by the Company, the Company
will not be liable to the Indemnitee under this Agreement for any fees of
counsel subsequently incurred by the Indemnitee with respect to the same
proceeding, provided that (i) the Indemnitee shall have the right to employ his
counsel in any such proceeding at the Indemnitee's expense; and (ii) if (A) the
employment of counsel by the Indemnitee has been previously authorized by the
Company, (B) the Indemnitee shall have reasonably concluded that there may be a
conflict of interest between the Company and the Indemnitee in the conduct of
any such defense or (C) the Company shall not, in fact, have employed counsel to
assume the defense of such proceeding, the fees and expenses of Indemnitee's
counsel shall be at the expense of the Company.

     8.   Exceptions.  Any other provision  herein to the contrary
          ----------
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:

          a.   Claims Initiated by Indemnitee.  To indemnify or advance expenses
               ------------------------------
to the Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by the Indemnitee and not by way of defense, unless (i) such
indemnification is expressly required to be made by law, (ii) the proceeding was
authorized by the Board, (iii) such indemnification is provided by the Company,
in its sole discretion, pursuant to the powers vested in the Company under the
General Corporation Law of Delaware or (iv) the proceeding is brought to
establish or enforce a right to indemnification under this Agreement or any
other statute or law or otherwise as required under Section 145.

          b.   Lack of Good Faith.  To indemnify the Indemnitee for any expenses
               ------------------
incurred by the Indemnitee with respect to any proceeding instituted by the
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous; or

          c.   Unauthorized Settlements.  To indemnify the Indemnitee under this
               ------------------------
Agreement for any amounts paid in settlement of a proceeding unless the Company
consents to such settlement, which consent shall not be unreasonably withheld.

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     9.   Non-exclusivity.  The provisions for indemnification and advancement
          ---------------
of expenses set forth in this Agreement shall not be deemed exclusive of any
other rights which the Indemnitee may have under any provision of law, the
Company's Certificate of Incorporation or Bylaws, the vote of the Company's
stockholders or disinterested directors, other agreements, or otherwise, both as
to action in his official capacity and to action in another capacity while
occupying his position as an agent of the Company, and the Indemnitee's rights
hereunder shall continue after the Indemnitee has ceased acting as an agent of
the Company and shall inure the benefit of the heirs, executors and
administrators to the Indemnitee.

     10.  Enforcement.  In any action to enforce this Agreement, Indemnitee, if
          -----------
successful in whole or in part, shall be entitled to be reimbursed for all
expenses actually and reasonably incurred by him in connection with such
enforcement action.  It shall be a defense to any action for which a claim for
indemnification is made under this Agreement (other than an action brought to
enforce a claim for expenses pursuant to Section 6 hereof, provided that the
required undertaking has been tendered to the Company) that Indemnitee is not
entitled to indemnification because of the limitations set forth in Section 4
and Section 8 hereof.  Neither the failure of the Company (including the Board
or its stockholders) to have made a determination prior to the commencement of
such enforcement action that indemnification of Indemnitee is proper in the
circumstances, nor an actual determination by the Company (including the Board
or its stockholders) that such indemnification is improper, shall be a defense
to the action or create a presumption that Indemnitee is not entitled to
indemnification under this Agreement or otherwise.

     11.  Subrogation.  In the event of payment under this Agreement, the
          -----------
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.

     12.  Survival of Rights.
          ------------------

          a.   All agreements and obligations of the Company contained herein
shall continue during the period Indemnitee is an agent of the Company and shall
continue thereafter so long as Indemnitee shall be subject to any possible claim
or threatened, pending or completed action, suit or proceeding, whether civil,
criminal, arbitrational, administrative or investigative, by reason of the fact
that Indemnitee was serving in the capacity referred to herein.

          b.   The Company shall require any successor to the Company (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Company, expressly to assume
and agree to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform if no such succession had taken
place.

     13.  Interpretation of Agreement.  It is understood that the parties hereto
          ---------------------------
intend this Agreement to be interpreted and enforced so as to provide
indemnification to the Indemnitee to

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the fullest extent permitted by law including those circumstances in which
indemnification would otherwise be discretionary.

     14.  Severability.  If any provision or provisions of this Agreement shall
          ------------
be held to be invalid, illegal or unenforceable for any reason whatsoever, (i)
the validity, legality and enforceability of the remaining provisions of the
Agreement (including without limitation, all portions of any paragraphs of this
Agreement contained any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or held to be invalid,
illegal or unenforceable, that are not themselves invalid illegal or
unenforceable) shall not in any way be affected or impaired thereby, and (ii) to
the fullest extent possible, the provisions of this Agreement (including,
without limitation, all portions of any paragraph of this Agreement containing
any such provision held to be invalid, illegal or unenforceable, that are not
themselves invalid, illegal or unenforceable) shall be construed so as to give
effect to the intent manifested by the provision held invalid, illegal or
unenforceable and to give effect to Section 13 hereof.

     15.  Modification and Waiver.  No supplement, modification or amendment of
          -----------------------
this Agreement shall be binding unless executed in writing by both of the
parties hereto.  No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provisions hereof (whether or
not similar) not shall such waiver constitute a continuing waiver.

     16.  Notice.  All notices, requests, demands and other communications under
          ------
this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressee or (ii) if mailed by
certified or registered mail with postage prepaid, on the third business day
after the mailing date.  Addresses for notice to either party are as shown on
the signature page of this Agreement, or as subsequently modified by written
notice.

     17.  Governing Law.  This Agreement shall be governed exclusively by and
          -------------
construed according to the laws of the State of Delaware as applied to contracts
between Delaware residents entered into and to be performed entirely within
Delaware.

     18.  Consent to Jurisdiction.  The Company and the Indemnitee each hereby
          -----------------------
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be brought only in the state courts of the State of Delaware.

                                      -8-
<PAGE>

     The parties hereto have entered into this Indemnity Agreement effective as
of the date first above written.


                              THE COMPANY:

                              PACIFIC GATEWAY EXCHANGE, INC.

                              By:_______________________________________________

                              Its:______________________________________________


                    Address:  533 Airport Boulevard, Suite 505
                              Burlingame, California 94010


                              INDEMNITEE

                              _________________________________________________




                    Address:  _________________________________________________

                              _________________________________________________


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