The Magnavox Odyssey 2000 was released in 1977 and is basically a slightly updated version of the Odyssey 300. Just like the 300, the Odyssey 2000 uses the AY-3-8500 single-chip from Texas Instruments. The Odyssey 2000 uses two rotating potentiometer style knobs for the players to control the games. This did away with the three knobs that earlier versions of the console used. This was all due to the use of the AY-3-8500 chip, which is essentially a Ball and Bat game engine on a chip.

The chip also adds better sound to the games and has a built-in speaker. There is on-screen score keeping and a practice variation of the squash game, in which a single player can practice his or her skills. The score keeping counts up to 15 points, and the player to first reach this amount wins. Like all other Odyssey consoles, this machine is powered by a 9V power adapter or six C-style batteries.

The AY-3-8500 "Ball & Paddle" integrated circuit was the first in a series of ICs from General Instrument designed for the consumer video game market.

In 1975 General Instruments developed the AY-3-8500 chip that would revolutionize home gaming. Initially there was no interest in the chip, General Instruments could not find interested buyers. At the same time Coleco had the desire to built a home console. Thanks to Ralph Baer, the brain behind the Magnavox Odyssey, Coleco and GI found each other and in 1976 Coleco Telstar was put on the market. It immediately became serious competition for the Magnavox Odyssey.

Ultimately the AY-3-8500 was used in more than 200 consoles, from the APF TV Fun, the Philips Tele-Spiel Las Vegas, the Sears Hockey Tennis game to the Tandy TV-Scoreboard and many, many more.

The AY-3-8500 was designed to output video to an RF modulator, which would then display the game on a domestic television set. The AY-3-8500 contained six built in games:

1. Tennis/Pong
2. Soccer/Hockey
3. Squash
4. Practice game
5. Shooting 1
6. Shooting 2

The AY-3-8500 was the 625-line PAL version and the AY-3-8500-1 was the 525-line NTSC version. It was introduced in 1976 with Coleco the first manufacturer to implement the chip in its Telstar console. Only a few external components were needed to build a complete system, which made this chip an attractive option to produce cheap pong machines.

The AY-3-8500 was the first iteration of the chip with black-and-white video output. It was possible to colorize the game by using an additional chip, such as the AY-3-8515.