A vertical-cavity surface-emitting laser (VCSEL) has an active region (20), first and second mirror stacks (14, 26) forming a resonant cavity with a radial variation in index forming a transverse optical mode (32), and a thin insulating slot (27) within the cavity to constrict the current to a diameter less than the beam waist of the optical mode thereby improving device efficiency and preferentially supporting single mode operation. In one embodiment, an insulating slot is formed by etching or selectively oxidizing a thin aluminium-containing semiconductor layer in towards the center of a cylindrical mesa. The slot thickness is sufficiently thin that the large index discontinuity has little effect on the transverse optical-mode pattern. The slot may be placed near an axial standing-wave null to minimize the perturbation of the index discontinuity and allow the use of thicker slots. In a preferred embodiment, the current constriction, formed by the insulating slot, is located on the p-type side of the active region and has a diameter significantly less than the beam waist of the optical mode, thus minimizing outward diffusion of carriers and ensuring single transverse-mode operation of the laser by suppressing spatial hole burning.