Yes, if your microcontroller has an analog output port, then you can directly write the value to that port. If not, you could use a D/A (digital to analog) converter chip, also called DAC's. These can be one of several interfaces; commonly serial, parallel, I2C, etc. National Semiconductor carries a lot of parts, so start with their selection, **broken link removed**. I'd recommend going with a 1-channel, kSPS device, 8 or 10-bit part.
With a DAC, you could actually output a pretty smooth sinewave, since 8-bits would give you 256 steps from minimum to maximum. Generally, a stepped sinewave is generated by high-power, low-frequency hardware such as switching multiple DC stages to form a "rough" sinewave that can supply a LOT of current to some load.