A diffractive backlight system includes a light source and a plate light guide. A surface of the plate light guide is configured with a diffraction grating that couples light out of the plate light guide and concentrates the light into a localized region of space. The diffractive backlight system may be used with at least one light valve array to form a display that generates images for viewing in the localized region of space. The display may be incorporated in head-mounted displays in order to generate focused augmented or virtual reality images for wearers.