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As the size and complexity of modern computing systems keep increasing to meet the demanding requirements of High Performance Computing (HPC) applications, manageability is becoming a critical concern to achieve both high performance and high productivity computing. Meanwhile, virtual machine (VM) technologies have become popular in both industry and academia due to various features designed to ease system management and administration. While a VM-based environment can greatly help manageability on large-scale computing systems, concerns over performance have largely blocked the HPC community from embracing VM technologies. In this paper, we follow three steps to demonstrate the ability to achieve near-native performance in a VM-based environment for HPC. First, we propose Inter-VM Communication (IVC), a VM-aware communication library to support efficient shared memory communication among computing processes on the same physical host, even though they may be in different VMs. This is critical for multi-core systems, especially when individual computing processes are hosted on different VMs to achieve fine-grained control. Second, we design a VM-aware MPI library based on MVAPICH2 (a popular MPI library), called MVAPICH2-ivc, which allows HPC MPI applications to transparently benefit from IVC. Finally, we evaluate MVAPICH2-ivc on clusters featuring multi-core systems and high performance InfiniBand interconnects. Our evaluation demonstrates that MVAPICH2-ivc can improve NAS Parallel Benchmark performance by up to 11% in VM-based environment on eight-core Intel Clover-town systems, where each compute process is in a separate VM. A detailed performance evaluation for up to 128 processes (64 node dual-socket single-core systems) shows only a marginal performance overhead of MVAPICH2-ivc as compared with MVAPICH2 running in a native environment. This study indicates that performance should no longer be a barrier preventing HPC environments from taking advantage of- the various features available through VM technologies.