Muon pair production through the radiative return is of importance for a
measurement of the hadronic production cross section in two ways: it provides
an independent calibration and it may give rise to an important background for
a measurement of the pion form factor. With this motivation the Monte Carlo
event generator PHOKHARA is extended to include next-to-leading order radiative
corrections to the reaction $e^+e^-\to \mu^+\mu^-\gamma$. Furthermore, virtual
ISR corrections to FSR from pions are introduced, which extends the
applicability of the generator into a new kinematical regime. Finally, the
effect of photon vacuum polarization is introduced into this new version of the
generator.