Disclosed herein are methods and systems for real-time image and signal processing in an augmented reality environment; for example, for video conferencing in a virtual environment of the participants' choice. In particular, image information of a real life object is extracted by separating the object from its actual environment in one or more images that are captured in real-time using a comprehensive characteristic-based mechanism. The extracted real life object is then integrated with a virtual environment based on image relations between each pixel of the image information of the real life object and a corresponding pixel of each image of the plurality of images of the virtual environment through a pixel-by-pixel integration approach. The image relations comprise at least a depth relation or a transparency relation.