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I am looking for a free tool that supports desktop video recording with picture-in-picture from a web cam.

The tool should be compatible with Windows 7 and 8

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Open Broadcaster Software makes that a walk in the park; just add an additional capture device to the default monitor and you're ready to go. From there you can right click it to change its size and position.

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  • +1 exactly what I was going to suggest. Let's you use multiple sources (webcams, screens, individual windows etc), position them however you like and either record or live stream. Very cool, and not overly complex! – Rikki Apr 26 '15 at 22:31

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