The IT industry has gained significant efficiency and flexibility as a direct result of virtualization. Organizations are moving toward a virtual datacenter (VDC) model, and flexibility, speed, scale and automation are central to their success. Although compute and memory resources are pooled and automated, networks and network services, such as security, have not kept pace. Traditional network and security operations not only reduce efficiency but also limit the ability of businesses to rapidly deploy, scale and protect applications. VMware vCloud® Networking and Security™ offers a network virtualization solution to overcome these challenges. This paper describes various components of the network virtualization solution and explains one of the key technology - VXLAN. It also provides design considerations that will help virtualization and network architects deploy this solution successfully in their environment.