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Virtualization has become increasingly popular for enabling full system isolation, load balancing, and hardware multiplexing for high-end server systems. Virtualizing software has the potential to benefit HPC systems similarly by facilitating efficient cluster management, application isolation, full-system customization, and process migration. However, virtualizing software is not currently employed in HPC environments due to its perceived overhead. In this work, we investigate the overhead imposed by the popular, open-source, Xen virtualization system, on performance-critical HPC kernels and applications. We empirically evaluate the impact of Xen on both communication and computation and compare its use to that of a customized kernel using HPC cluster resources at Lawrence Livermore National Lab (LLNL). We also employ statistically sound methods to compare the performance of a para virtualized kernel against three popular Linux operating systems: RedHat Enterprise 4 (RHEL4) for build versions 2.6.9 and 2.6.12 and the LLNL CHAOS kernel, a specialized version of RHEL4. Our results indicate that Xen is very efficient and practical for HPC systems.