Selective lateral etching for an Al0.3Ga0.7As/GaAs system was conducted with iodine-potassium iodide (I-2/KI) redox solution having high preferential etching characteristics. The selectivity of Al0.3Ga0.7As relative to GaAs varied with the molar ratio of I-2/KI, pH, stripe direction, and stirring speed of the solution. The undercut widths of Al(0.3)Ga(0.7)AS below the GaAs layer were measured by observing the etched cross-section with a scanning electron microscope. For the  directional stripe, the undercut width of Al0.3Ga0.7As was measured up to about 3 mu m after etching for 1 min under the etching conditions of [I-2]/[KI] = 0.67 and pH = 2.76. As a new application to the AlxGa1-xAs/GaAs heterojunction bipolar transistor (HBT) with x less than or equal to 0.3, selective lateral etching was carried out to reduce the extrinsic base-collector capacitance of the HBT. As the result of capacitance-voltage (C-V) measurement, the base-collector capacitance of the lateral etched HBT was reduced to about 50% of that of the conventional HBT.