Nested virtualization is the ability to run a virtual machine (VM) inside another virtual machine. This allows users to create a virtualized environment where a hypervisor (virtual machine monitor) runs within another hypervisor, effectively creating a hypervisor within a hypervisor.

Nested virtualization is useful in environments like testing, development, and training, where creating multiple levels of virtualization can simulate complex network environments. For example, it allows organizations to run VMs within VMs on cloud platforms for testing purposes, such as setting up entire virtualized data centers.

This feature is supported by modern hypervisors like VMware ESXi, Microsoft Hyper-V, and KVM. Nested virtualization is essential for cloud providers offering Infrastructure as a Service (IaaS), as it allows customers to run their own hypervisors and deploy VMs within those instances.

It’s also beneficial for developers working on hypervisor technologies or enterprises that need to run sandboxed environments for security purposes. However, it requires robust hardware support for virtualization extensions like Intel VT-x and AMD-V to maintain performance and stability across multiple layers.