Digital effects Early computer animation . As early as 1970 , Jim Henson started exploring the use of computer animation , and used the budding technology for some " Sesame Street " counting films . The films were animated using the Scanimate process at Computer Image in Denver , Colorado in 1970 . Henson collaborated with Digital Productions in 1986 to produce the opening title sequence for " Labyrinth " , featuring a computer animated owl flying back and forth , rippling a pool of water . The sequence was created by animators Larry Yaeger and Bill Kroyer , and marked the first use of a realistic CGI animal in a film . The opening sequence of " Labyrinth " won its animators the NCGA Best Computer Animation award of 1986 . Digital environments . Henson was interested in the developments in the field of computers and looked for opportunities to incorporate computer - generated images into his work . An outer - space television project called " Starboppers " that was in development in the early 1980s seemed like an ideal match . Henson got in touch with Digital Productions , an LA company whose Digital Scene Simulation capabilities had evolved from their early work shot on mechanical analog computer systems . The firm ' s principals , John Whitney , Jr . and Gary Demos , had worked on " Westworld " and " " respectively . At the time of Henson ' s meeting with Digital in 1983 , they were in production with " The Last Starfighter " . While " Starboppers " was planned to be a puppet production , Henson imagined that the background sets would be digitally created and the characters would perform before a green screen . The puppeteers , while performing , would watch their performances on television monitors , but instead of the green screen , they would see their characters within the virtual sets . In the end , the project did not come to be , but this technique with digital backgrounds was eventually used in such productions as " The Jim Henson Hour " , " Song of the Cloud Forest " , and " The Wubbulous World of Dr . Seuss " . Henson showed a demonstration of the digital environments used on " The Jim Henson Hour " in the " " episode . In " Elmo ' s World , " Elmo ( or variants thereof ) often appear in front of digital backgounds in the imaginary world seen by Dorothy . Other segments , such as " Journey to Ernie , " " Super Grover 2 . 0 , " and " Elmo the Musical , " also employed the use of fully computer - generated backgrounds . Additionally , many of the sets in the direct - to - DVD series " Sesame Beginnings " were digital environments . Digital puppets . Jim Henson began to explore a marriage of digital animation and puppetry with the development of the Henson Digital Puppetry System . Using what he knew from the Henson Performance Control System ( the radio controlled puppetry used to help Kermit ride a bike , Emmet Otter row a boat , and extensively throughout " Fraggle Rock " ) , Henson joined forces with Pacific Data Images to create Waldo C . Graphic , a digitally animated character for " The Jim Henson Hour " and " Muppet * Vision 3D " . The characters of Tizzy the Bee on " Jim Henson ' s Animal Show with Stinky and Jake " and Horace D ' Fly in " Kermit ' s Swamp Years " were also created and performed using a similar technique . Fully - digital Muppet mosquitos also appeared in the opening of " Muppet Treasure Island " . " Sesame Street 4 - D Movie Magic " featured several digital characters created by Jim Henson ' s Creature Shop , including a . The various faces of the Wizard in " The Muppets ' Wizard of Oz " were also created and puppeteered using Henson ' s Digital Puppetry System . Computer animated characters . Early on , many of the animated characters in " Elmo ' s World " - such as Elmo ' s computer , drawer , shade and door - were performed in real - time alongside through the use of motion - capture puppeteering . However the use of motion - capture performances was dropped as production got more complicated . Simple stand - ins and markers were used in later episodes and the animated characters were added in post - production using traditional key - frame computer animation techinques . The Christmas ghosts in " A Sesame Street Christmas Carol " - Rhubarb the Grouch , Christmas Carole , and iSam - were animated using traditional key - frame animation techniques by Magnetic Dreams . The company also animated the Twiddlebugs in promos and a series of " Sesame Street " inserts . Abby Cadabby was adapted into a computer animated form for the " Sesame Street " segment " Abby ' s Flying Fairy School " . The segement was the first time a " Sesame Street " Muppet was modeled for a 3D animated world . Digital enhancements . Digital enhancements have been used to make the Muppets appear as autonomous , stand - alone beings free of their strings , rods , wires , and puppeteer operators using the chroma key technique . Unlike most effects - heavy movies , Muppet productions have used digital effects to conceal what ' s actually there instead of adding things to the scene . Beginning with 1999 ' s " Muppets from Space " , the arm rods or arm sleeves of the Muppets were digitally removed in major productions . The practice is also employed in select episodes of " The Furchester Hotel " . Many times , digital effects are used to composite a shot or allowing for chroma key techniques to be used . Other times , digital effects are used to enhance a scene or add other specific effects . For example , in " The Muppets " , digital enhancements were used to alter Walter ' s reflection in a carnival mirror , change the El Capitan Theatre into The Muppet Theatre , create the large crowd of fans filling Hollywood Boulevard , and switch a poster outside the Muppet theater for " Gnomeo & Juliet " to promote " Cars 2 " . Henson Digital Puppetry Studio . Brian Henson has continued his father ’ s work in the area of motion - capture digital puppeteering with the development of the Creature Shop ' s Henson Digital Puppetry Studio ( HDPS ) . The HDPS allows for digital puppets to be controlled and manipulated in fully digital environments . In 2000 , Henson produced " MuppetToons " , a series of shorts featuring digitally puppeteered and computer - rendered versions of the classic Muppet characters . A demonstration of the digital Muppets were shown to fans at MuppetFest . Henson ' s PBS series " Sid the Science Kid " is produced with the digital puppetry system . Other HDPS series and productions include " Frances " , " The Skrumps " , and " " .