Short range wireless communication systems are expanding at rapid rate, finding application in offices, congested urban areas and homes. Development of wireless local area networks is accompanied by a steady increase in the demand for ever higher data rates. This in turn entails the necessity to develop communication systems which operate at higher frequencies. Currently WLAN works at a few GHz, while systems operating at several ten GHz appear already feasible. It can be expected that wireless short-range communication networks will soon push towards the THz frequency range and that systems which handle high-density information and support wider bandwidth communications will be developed in a few years time. Since THz radiation is strongly absorbed by the atmosphere, working distances may be short and individual THz pico-cells may cover only single rooms or at most one building. For an indoor system of practical importance it must be robust against shadowing. Recently, flexible all-plastic mirrors, supporting specular reflections in the THz range have been demonstrated. They are cheap and easy to produce and can be used as frequency selective wall-paper to enhance the reflectivity of walls and hence facilitate non-line-of-sight communication in a THz cell. For this case the spatial and temporal characteristics of the indoor THz propagation channel in a room with randomly placed objects and moving people are derived with ray-tracing methodology and Monte Carlo simulations. Our simulations show that high-gain antennas will be needed for the realization of THz communication in indoor environments. Furthermore, indirect transmission paths between transmitter and receiver, supported by dielectric mirrors make the communication channel much more robust against shadowing.© (2005) COPYRIGHT SPIE--The International Society for Optical Engineering. Downloading of the abstract is permitted for personal use only.