Virtual machines may run in one of two main modes, paravirtualized (PVM) or hardware virtualized (HVM). In paravirtualized mode, the kernel of the guest operating system is recompiled to be made aware of the virtual environment. This allows the paravirtualized guest to run at near native speed, since most memory, disk and network accesses are optimized for maximum performance.

If support for hardware virtualization is available (either Intel VT or AMD-V), the guest operating system may run completely unmodified. This hardware virtualized guest is carefully monitored and trapped by Oracle VM Server when any instruction is executed which would violate the isolation with other guests or dom0. In the current implementation, there may be performance penalty for certain types of guests and access types, but hardware virtualization also allows many Microsoft Windows™ operating systems and legacy operating systems to run unmodified.

The third virtualization mode is hardware virtualized, with paravirtualized drivers (PVHVM). This mode is identical to hardware virtualized, but with additional paravirtualized drivers installed in the guest's operating system to improve virtual machine performance.

Oracle recommends you create paravirtualized virtual machines if possible, as the performance of a paravirtualized virtual machine is superior to that of a hardware virtualized guest.

There are three virtual machine virtualization modes, or domain types, as shown in Table 7.1, “Domain Types”. When you create a virtual machine using the Virtual Machine wizard you must select which mode to use.