With nested virtualization, you can run virtual machines (VMs) within other VMs. A standard VM that runs on a physical host can also act as a second hypervisor and create its own VMs.

Because the second level of virtualization reduces performance significantly, it is intended primarily for development and testing.

Nested virtualization terminology

Level 0 (L0)

A physical host, a bare-metal machine.

Level 1 (L1)

A standard VM, running on an L0 physical host, that can act as an additional virtual host.

Level 2 (L2)

A nested VM running on an L1 virtual host.

Important: The second level of virtualization severely limits the performance of an L2 VM. For this reason, nested virtualization is primarily intended for development and testing scenarios, such as:

• Debugging hypervisors in a constrained environment
• Testing larger virtual deployments on a limited amount of physical resources