Palacios is a new open-source VMM under development at Northwestern University and the University of New Mexico that enables applications executing in a virtualized environment to achieve scalable high performance on large machines. Palacios functions as a modularized extension to Kitten, a high performance operating system being developed at Sandia National Laboratories to support large-scale supercomputing applications. Together, Palacios and Kitten provide a thin layer over the hardware to support full-featured virtualized environments alongside Kitten's lightweight native environment. Palacios supports existing, unmodified applications and operating systems by using the hardware virtualization technologies in recent AMD and Intel processors. Additionally, Palacios leverages Kitten's simple memory management scheme to enable low-overhead pass-through of native devices to a virtualized environment. We describe the design, implementation, and integration of Palacios and Kitten. Our benchmarks show that Palacios provides near native (within 5%), scalable performance for virtualized environments running important parallel applications. This new architecture provides an incremental path for applications to use supercomputers, running specialized lightweight host operating systems, that is not significantly performance-compromised.