System and method for supporting flexible forwarding domain boundaries in a high performance computing environment. In accordance with an embodiment, flexible forwarding domain boundaries can be supported by dividing/partitioning a physical switch into two or more logical switches, where each switch is logically in a different domain, and allowing a fabric to be decomposed into independent subnets with one two or more physical end ports at the physical switch. By doing so, the same hierarchical forwarding structure and management structure between subnets can be provided as when complete physical switches are used as building blocks.