We report a novel scheme for monolithic integration of a nanoisland laser with a shifted-air-hole waveguide by employing selective etching techniques. An active L3 laser cavity and passive shifted-air-hole waveguide are simultaneously formed through a single fabrication step. In the shifted-air-hole waveguide, the air-hole position is adjusted to be compatible with selective etching. The spectral overlap between the L3 laser resonance and guided mode is achieved by introducing small air holes at the nodes of the shifted-air-hole waveguide. Experiments show that >60% of the light is coupled from the nanoisland laser to the end of the 12-mu m-long waveguide.