I know of two ways...

Using a custom classloader:
Tomact for instance will reload classes in a webapp context if the context
has been marked as reloadable. It should be possible to
write a custom classloader that does the same, some thought about this:
http://mindprod.com/jgloss/reloading.html

Using JPDA:
Eclipse for instance can reload classes during debugging using JVM
instrumentation.

Cheers,
Martin.

Yes.  It requires that there be no references to the class. However, the
class loader maintains a reference to each class that it loads.  Thus, you
must deal with the class loader, by creating (if I recall correctly) a custom
class loader.  This is not as hard as it may sound.

A solution is shown in:

Java Reflection in Action (In Action series) by Ira R. Forman and Nate
Forman  (ISBN: 1932394184 )

The book also explains the limits of this approach.

Disclaimer:  I have no connection with the publisher or the authors.  Just a
satisfied reader.