Described by the collective as "the final word in bag miniaturization", the bag-shaped model is 657 micrometres high and 700 micrometres long.
Made from neon-green photopolymer resin, the microscopic handbag was 3D printed using technology normally used for making biotech structures.
Although it is visible to the naked eye, the bag's details can only be viewed through a microscope. The tiny model has a handle and a Louis Vuitton logo and is covered in the brand's monogram pattern.
"There are big handbags, normal handbags, and small handbags," said MSCHF. "Various brands at various times have dabbled in the extremes of each."
"Smaller than a grain of salt, MSCHF's Microscopic Handbag is made via a stereolithographic process commonly used for making tiny mechanical biotech structures," it continued.
MSCHF created the bag as a comment on the luxury fashion industry and the functionality of small bags.
"As a once-functional object like a handbag becomes smaller and smaller its object status becomes steadily more abstracted until it is purely a brand signifier," said the collective.
"Previous small leather handbags have still required a hand to carry them – they become dysfunctional, inconveniences to their 'wearer'," it continued.
"Microscopic Handbag takes this to its full logical conclusion. A practical object is boiled down into jewelry, all of its putative function evaporated; for luxury objects, useability is the angels' share."
The bag is set to be displayed in Paris within a sealed gel case placed beneath a microscope along with an image of it on a screen ahead of being sold online at the Just Phriends auction at the end of this month.
The Just Phriends auction forms part of Joopiter, which was launched by American musician and record producer Pharrell Williams – who recently became head of menswear at Louis Vuitton – last year.
Brooklyn-based collective MSCHF is known for its parody artworks, including an ATM that shows a users' current account balances and a sneaker filled with blood co-designed with American musician Lil Nas X. Last year, the collective had its first solo gallery show in New York, which featured a fridge full of a "functional" LSD analogue.