Techniques for optimizing CPU usage in a host system based on VM guest OS power and performance management are provided. In one embodiment, a hypervisor of the host system can capture information from a VM guest OS that pertains to a target power or performance state set by the guest OS for a vCPU of the VM. The hypervisor can then perform, based on the captured information, one or more actions that align usage of host CPU resources by the vCPU with the target power or performance state.