We have developed an efficient Levenberg-Marquardt iterative algorithm utilizing a three-dimensional field measurements coupled to a two-dimensional optical property reconstruction scheme. This technique takes advantage of accurate estimation of light distribution in 3D forward calculation and reduced problem size and less computation time in 2D inversion. Important advances in terms of improving algorithm efficiency and accuracy include use of an iterative general minimum residual method (GMRES) for computing the field solutions, application of the dual mesh scheme and adjoint method for Jacobian construction, and implementation of normalization scheme to reduce the absorption-scattering cross talk. The synthetic measurement data were calculated for a cubic phantom containing a single absorption anomaly and a single scattering anomaly. The model had a background of μ=0.03mm and μ'=1.4mm. The absorption and scattering anomalies have the μ = 0.06 mm and μ' = 2.0 mm. Five sources and 72 detectors are used per slice. A typical human prostate is composed of 6 slices. The reconstruction images successfully recover the both anomalies with good localization. Experiment data from tissue simulated phantom are also presented. The clinical DOT imaging was performed before photodynamic therapy based on the protocol. The preliminary results showed the reconstructed prostate μa varied between 0.025 and 0.07 mm and μ' ranged from 1.1 to 2 mm. These results show that this new 2D-3D hybrid algorithm consistently outperform the 2D-2D or 3D-3D counterparts.