NASA is already using an unpiloted version of Dragon to send cargo to the International Space Station and return valuable gear and scientific experiments. But Musk has always wanted Dragon to become a reusable ride for astronauts.
The new vehicle has simple silvery walls, seats for up to seven passengers and a set of flatscreen control panels. The spacecraft can dock itself to the ISS without help from the space station's robotic arm. But the most radical aspect of the redesign is the landing gear, which will allow astronauts to set the spacecraft down on solid ground.
The current version of Dragon deploys a parachute as it descends and splashes down in the ocean. Dragon V2 instead comes with a set of incredibly powerful SuperDraco engines, each capable of producing more than 70,000 newtons of thrust. The engines will allow astronauts to better manoeuvre in space as well as control their trajectory for re-entry.
"You'll be able to land anywhere on Earth with the accuracy of a helicopter," Musk said during the event at SpaceX headquarters in Hawthorne, California. The engines are encased in protective shells, and they are set up in pairs so that if one fails, the other can give a boost of power to compensate.
The Dragon V2 also has sturdier heat shields, which brings SpaceX a step closer to realising its goal of developing spacecraft that are fully and rapidly reusable. SpaceX has successfully tested a set of landing legs on a rocket used to send the uncrewed Dragon to the ISS, and Musk hopes to soon make it possible for rockets and crew capsules to simply be reloaded with propellant and flown again, much like commercial airplanes.
"As long as we continue to throw away rockets and spacecraft, we will never have true access to space," says Musk.
Like passengers in today's commercial aeroplanes, riders of the Dragon V2 won't get much leg room in the capsule's tight quarters. But the craft does include touchscreen interfaces to control the spacecraft, as well as manual buttons for critical functions that would be needed in case of emergency.
NASA astronauts are not set to ride in the Dragon V2 until 2017. However, a colony of mice and rats will make the journey on the next SpaceX cargo launch, becoming the private company's first mammalian passengers.
The rodents are set to spend six months on the ISS and will be the subjects of various experiments on the long-term effects of microgravity on mammal physiology. The results will hopefully prove handy for Musk, who hopes to eventually shuttle humans on the long trip to Mars.
When the Dragon V2 does launch with its first commercial crew, the face of space travel is going to change. "It will no longer be heroic to go to space – it will become a commodity – and it's about time," says John Logsdon, a space policy expert at George Washington University's Elliott School of International Affairs in Washington DC. "What will count is what people do once they get there."